Financial Advisor Experience – 7 Questions You Must Ask!

A critical key to successfully selecting your financial advisor is know what questions to ask. The painful truth is most consumers of financial and investment planning services don’t ask some of the most basic questions when finding, interviewing, and choosing the right financial advisor for their specific needs and financial goals. Rather they tend to be wooed by flashy signs on imposing buildings, fancy decor, ultra-slick TV ads and impressive titles. Choosing the wrong financial advisor however can lead to financially disastrous consequences for you and your financial security – and those flashy signs, smooth marketing campaigns, and embellished sounding titles are the least of what you as a consumer should be concerned with.

The problem stems from the Wall Street machine and their monstrous marketing budgets. Wall Street firms label their salespeople “Financial Consultant” or “Vice President of Investments” (I know, I had both titles at points in my career) – remarkable job titles to say the least, and most certainly comforting in nature to the consumer. They piece together emotionally provocative marketing campaigns with catchy slogans and striking logos. They advertise their spectacular investment products and financial planning services on TV, on the radio, and in the most popular trade magazines.

The sordid truth is the Wall Street machine engages in this “financial pornography” to wow and woo you, to impress you, and to give you comfort in the quality of their advice and value of their investment products before you even walk in the door. In reality, the flashy signs and chic titles mean nothing.

Checking your financial advisors background, credentials, philosophy, compensation and experience in the financial services industry can quickly weed out the “less professional” financial advisors – and effectively simplify your decision making process in finding the right financial advisor.

One of the most important “qualifiers” of a professional financial advisor is their level of experience in serving client’s financial needs and helping them accomplishing their goals. Notice I didn’t say “length of experience in the business”. Length of financial services industry experience may mean little if anything, because a financial advisor may have 20 years of experience which may include years of nothing remotely related to serving clients financial needs.

There are plenty of financial industry jobs which may give the impression of real-life “in the trenches” client services experience, but in reality these jobs aren’t much more than administrative, managerial, or sales in nature. To choose the right financial advisor, focus on asking the right questions, and expect thorough answers:
How long have you been working directly with clients as their primary financial advisor?

How long have you been recommending investment and insurance products?

How long have you been actively and consistently creating financial plans for clients to help them achieve their financial goals?

What is your training background, and where did you learn how to diagnose, manage, and solve your clients financial problems?

How many years did you spend training for your position as a financial advisor?

What firms have you worked for in the capacity of a financial advisor?

How many written financial plans have you created for clients?

Those seven questions will garner the majority of information you’ll need to make an informed decision on your financial advisor’s experience level. But just what should their answers entail? In terms of acceptable financial advisor experience, I would argue the following:

A minimum 3 years of experience. Anything less is a threat to your financial future you can’t afford to take. Financial advisor’s can intern (or act as a para-planner) with more experienced financial professionals working with clients directly, and should do so for at least three years before taking on the primary role as your financial advisor. Given the volatility and uncertainty of current times, it’s easy to make a case for 10 years or more of practical, real-world experience. You wouldn’t lay on the operating table for open heart surgery knowing your doctor graduated from medical school yesterday would you?

A college degree. This is a new requirement for NAPFA (the National Association of Personal Financial Advisors, registered financial advisors. While a college degree isn’t the “be-all end-all”, it shows dedication to training and increasing your knowledge early in life – a trait which commonly caries over throughout your career.

A CERTIFIED FINANCIAL PLANNER™ (CFP®) or Chartered Financial Consultant® (ChFC®) designation. Both credentials show substantial dedication to being among the best in the financial services field. Both credentials are difficult to achieve and require ongoing continuing education to maintain. Both credentials illustrate the experience and training so vital to your financial success.

20 written financial plans. Many “financial advisors” don’t do written financial plans (but many “financial advisors” are that only in title, and are actually salespeople in practice). Regardless of whether you need a written financial plan or not (not every client needs a written financial plan), your financial advisor should understand how to create one and have reasonable experience in doing so. You may not need that open heart surgery, but don’t you want your cardiologist to have the experience requisite to making a wise decision when you have chest pain?

Experience is but one primary component of excellence in financial advice and superior client service. There are many other facets of a financial advisory practice that are important. In the end however, don’t you feel more confident you’ll be able to reach your financial goals knowing that this isn’t your financial advisor’s “first rodeo”?

Take the time, ask questions when you interview a financial advisor. Require and expect thorough and reasonable answers. Doing so will help you achieve confidence that you’ve found an experienced financial advisor able to deliver excellence in financial advice!

How to Choose Relevant Financial Literacy Plans

Record debt, skyrocketing foreclosures and a large number of people suffering from financial stress…sound familiar? Many of the problems people face today could have been avoided if they had received a practical financial education.

Teens and young adults tend to learn more from practical financial literacy lesson plans. Having a practical financial literacy curriculum as support will help you teach important guidelines to your child. This allows them to be more financially responsible in the way they deal with everyday finances as well as long-term expenses. It is essential that you instill your spending habits in your children in order to get the ready for their financial independence.

Many schools have started offering a financial literacy curriculum to their students, either in the form of economics classes or classes geared specifically towards preparing students financial responsibility in college or independent living.

In light of the current financial situation it is vital that we arm our young people with the financial information they need to be successful in the financial real world. If you want to make a lifelong difference in a child’s quality of life then choose an engaging and relevant financial literacy course. But, how do you choose a financial literacy curriculum that students will actually implement? That is the question that will be answered in this article.

Studies indicate that less than adequate financial training has a negative effect on students. They report boredom and confusion which in turn turns them off to learning more about money matters. The instructors had good intentions when they begin implementing the financial education course; regrettably, the financial lesson plans had a negative effect instead.

To ensure your financial education class makes a lasting difference in students lives it is important you choose a financial literacy curriculum that are designed to keep the students engaged and motivated to learn more. The following are seven ways to help you choose the most effective financial literacy lesson plans in order to help your students live a life of financial freedom.

1) Review the Curriculum Designers Background. Most financial literacy curriculum is written by people who have not had significant money or business experience. Make sure the financial education lesson plans you choose have been designed by a team of experienced professionals. Look for curriculum that is developed by a team of financially successful entrepreneurs and teachers that have a track record of curriculum development experience. Finding a curriculum that combines top teachers with business leaders will put you immediately on the right track.

2) Find Curriculum that Motivates & Educates. Having reviewed hundreds of financial literacy lesson plans and talked to thousands of youth many of them have been turned off ‘learning about money’. Many students have complained about past financial literacy classes being boring and confusing. A well designed financial literacy curriculum, taught properly, can be a rewarding and entertaining experience. A good test is to review the curriculum late at night and see if it passes the snooze test.

3) Find Lesson Plans that Grow with Students. In a perfect world financial lessons would be taught over time and your students would build their money skills over time. Since this is a luxury most educators will not receive, it is important to choose curriculum that builds on the prior lessons and covers the key principles that make up the foundation knowledge of their education.

4) Lesson Plans Cover the Mental Game of Money. Talk to any financially successful person out there and the majority will agree that the mental game of money serves as a foundation for our financial decisions. It is also well documented that the average person makes most of their financial decisions because of emotional responses, not logic. That is why it is critical that the financial literacy curriculum you choose covers the mental game of money.

5) Financial Success Training Curriculum. The ultimate goal of financial literacy lesson plans is to help our youth reach the level of financial success they desire. Implementing curriculum that focused on providing real world money lessons will not only keep students interested but will also put them on track to achieving financial security.

6) Practical Education before Theory Based Memorization. While the more advanced financial theories should be taught it is important to emphasize practical financial lessons that translate to the real world for students. The advanced theories will can be taught once the practical financial curriculum has been mastered. Considering the fact that over 40 million Americans do not have bank accounts, locate curriculum that walks students step-by-step through basic account structure and includes activities that helps to build their financial foundation.

7) Teach with Entertaining & Engaging Curriculum. By the time a student graduates high school many have sat through more than 10,000 classes. There is not much time to teach financial literacy, so it is exceptionally important that it stands out from the thousands of other lectures students must sit through. Choose curriculum that engages the students with activities, multi-media, celebrities, movement, props and other tools to help our students internalize financial literacy lesson plans so they benefit from this knowledge throughout their life.

Maximize the effectiveness of your time and financial literacy class by getting financial literacy curriculum designed to get students excited to learn about money. The confidence that a practical financial education can bring to students will have long-term positive benefits that affect many area of your student’s life.

The 7 Baby Steps of Financial Peace

In this age of “information overload,” many Americans possess the knowledge to develop and maintain successful financial lives. Through a quick online Google search or by listening to so-called “financial talking heads,” Americans have access to split-second information to answer most any financial question. Yet regardless of easy access to financially sound advice, many are burdened with crippling debt, habitual overspending, and scarce savings. Perhaps the more recent financial ills of Americans may be attributed to the following financial choices made by consumers: (1) The lack of a monthly budget manifests into reactive buying habits instead of proactive spending habits. Put more succinctly, the average consumer might say, “Money just slips through my fingers and I don’t know where it all goes.” (2) Easy money through savvy financial marketing of credit offers facilitates unaffordable buying power. It’s also likely not an accident, that we have all grown accustomed to being referred to as “consumers.” It begs the question: Why are we not referred to as “savers” or “investors?” The very connotation of the term “consumer” assumes that Americans will buy and spend and not restrain and save. Since the main-stream American has easy access to information pertaining to sound financial choices, yet so many have not followed these principles, an apparent disconnect appears to exist between financial knowledge and the application of that knowledge into every-day financial lives. So it would appear that Americans perhaps suffer from a case of too much information and too little financial education. As an example, read about John, an 18-year old who is ready to depart for college.

Like many teenagers, John’s primary financial education has been nearly non-existent in the school classroom. Rather, John’s financial education has been shaped through marketing advertisements from print, online, and television media-which has bombarded him with messages of affording the unaffordable through so-called “easy” financial terms. Our story begins with John on-track to graduate with honors from high school. He is accepted to several colleges but forgoes a full in-state scholarship to attend his out-of-state choice, UNC Chapel Hill. To afford his dream college, John takes out $12,000/year in subsidized student loans. In his eyes, John’s choice was quite simple: He could stay close to home to go to college or attend his dream college at UNC Chapel Hill. Because of easy access to extreme amounts of student loan debt, John’s unaffordable dream is transformed into reality. And because the acquisition of debt is made so easy through student loan programs, the debt is not a major deciding factor in John’s choice. Before John leaves for college, he also buys a new car. The easy financing offer includes 72-month financing and no money down. His Dad cosigns the loan and Dad’s rationale is that he is helping John “establish credit.” In 4 years, John graduates from UNC Chapel Hill and his debt total is $58,000 ($48,000 from student loan debt and $10,000 remaining on car loan). John is keenly aware of his debt load and he also knows that his student loan repayment will begin promptly 6 months after graduation. So needless to say, he looks forward to his first paycheck.

Through his connections at UNC Chapel Hill, John lands a good first job but his excitement is turned to shock when he looks at his first paycheck. He takes the paystub to H.R. and asks, “Who is FICA and what did he do with my money!” Regardless of the hard lesson in taxes, John is excited to have his own money and he wants his apartment to look good. John visits the local furniture store and charges $3,000 to the store credit card-which promises 12 months “same as cash.” John has also grown tired of his “college car” and decides to trade it in for a new one. He learns what it means to be “upside down” when he goes to trade-in his college car but through the liberal financing terms of the dealership, he’s permitted to roll the negative equity of his trade into the new car loan. Whereas many of John’s financial decisions to this point have resulted in debt, John realizes that he needs to save some money as well. So he’s quite happy to learn that his company offers a matching contribution through a 401k plan. John signs-up and feels good that he’s saving money for the future and getting “free money” in the way of a company match.

But 6 months after graduation, the bills come due. John is faced with starting student loan repayments but in order to keep the payments low and afford his auto and credit card payments, John chooses the interest-only option, as advertised by the student loan company. The result of all this debt spending is that in only 4-5 years following high school, John’s financial condition is quite poor. But life seems fine to him-thanks in large part to the promise of easy financing of an unaffordable lifestyle.

Our story continues as John meets Mary, the girl of his dreams. They quickly fall in love and decide to get married. Rings and the honeymoon are bought on credit as the parents pay for the wedding (by taking out a loan on their own 401k plans). John and Mary also find the house of their dreams and are happy to learn that the financial terms of the mortgage company include no down payment. Even the closing costs are rolled into the mortgage-meaning John and Mary won’t even have to write a single check to move into their dream home. With their incomes stretched paper-thin, John and Mary decide to temporarily opt out of their health insurance plans. They plan to restart their health plans when their income increases from expected salary raises. With the accumulation of a mortgage payment, student loan repayments, credit card bills, and car payments, John and Mary begin arguing over their finances. Unable to afford all their minimum payments, John cashes-out his 401k but he elects not to have any taxes withheld upon withdrawal (401k withdrawals are subject to taxes and a 10% IRS penalty). When he files his tax return, he doesn’t have the money to pay the taxes and penalties. And to top it all off, Mary has news for him. She’s pregnant.

After reading John and Mary’s financial plight, this story may sound quite familiar as many stories have been written of homeowners who have been foreclosed or been forced into bankruptcy. And these occurrences were magnified during the Great Recession. The overuse of easy financing facilitates an unaffordable standard of living. And this “house of cards” easily crumbles through financial emergencies such as job loss. As mentioned earlier, it would appear that a lack of financial education, not financial knowledge is at least partly to blame for financial challenges faced by our young couple, John and Mary.

With the apparent need for financial education in our country, a man by the name of Dave Ramsey has heeded the call through his solution, known as Financial Peace University (FPU). FPU consists of a 13-week class taught through churches and community centers across the country. And the most important elements of the FPU class focuses on Dave Ramsey’s 7 baby steps. The following is a brief summary of the 7 baby steps taught through Dave Ramsey’s FPU class. But this summary is no substitute for attending FPU, which is highly encouraged.

Baby step 1 recommends a $1,000 savings for an emergency fund. This first baby step is the most important in my view. It represents a “line drawn in the sand.” It is a conscience decision to recognize that financial emergencies will occur again. Yet, with a $1,000 saved for emergencies, the emergencies perhaps won’t seem as pressing. Perhaps even more important, Dave Ramsey encourages the development of a preliminary, first-time budget. And he recognizes that the first-time budget is likely to fail. But through trial and error, he emphatically addresses the need to create a budget in order to faithfully plan how to spend and account for every dollar before pay-day arrives. Through diligent trial and error, Dave will encourage you to review the budget every month, especially between married couples. This type of systematic planning may eliminate many arguments over money-because both partners must first agree on the budget each and every month.

Baby step 2 recommends debt pay off using the “debt snowball.” This baby step constitutes several commitments. As the old saying goes, “If you find yourself in a hole, stop digging.” Regarding credit card debt, consider for a moment that your plastic credit cards symbolize the spade on the end of a shovel. Every time you use credit cards, that shovel digs a deeper financial hole. The solution is simple, but many resist this solution. Dave recommends that you cut up your credit cards. That’s how you “throw away the shovel” and stop the madness of digging a deeper financial hole. Dave believes that until you’ve made this commitment, your steps to financial peace will be made in vain. I agree that this concept may seem radical to some, and also, some “talking heads” are adamantly opposed to eliminating the use of credit cards. But it’s hard to argue with the sound financial principle that if you can’t afford something, you shouldn’t buy it. Eliminating credit cards and so-called “easy credit” offers from your financial life also eliminates the tool that facilitates an unaffordable lifestyle. Once you have cut-up credit cards, Dave then encourages you to begin your “debt snowball.” The debt snowball concept recommends that you pay off the lowest balance first. And once you have eliminated one debt, apply that payment to the next debt in order to pay it off more quickly. Through his FPU class, Dave claims that the average family eliminates $5,300 in debt while building $2,700 in savings (Source: Dave Ramsey’s Financial Peace University class). At the successful completion of the debt snowball (all non-mortgage debt paid off), Dave Ramsey encourages the use of an envelope system for your daily spending. So if you follow his teaching, your everyday spending should consist of: cash, automatic payments (for monthly bills) debited from your checking account, and lastly, a debit card.

Baby step 3 recommends saving 3-6 months of expenses. The age-old advice of saving 3-6 months of income is not a new concept. But rather than just state the obvious and leave it at that, Dave continually encourages the use of a budget in order to systematically accomplish any and all goals, including step-by-step savings to fully fund baby step 3. Regarding the 3 to 6 month question, I believe a good rule of thumb is to review the security of your employment to determine how much should constitute your emergency savings. A government job, for example, is generally more secure than a private sector job. For example, with a married couple, if the husband is a school teacher and the wife works for a technology firm, I would encourage them to split the difference and work to save the equivalent of 4 months of household expenses.

Baby step 4 recommends investing 15% of income into Roth IRAs and Pre-Tax Retirement Plans. This is where investing with a financial professional may be most advantageous. For some financial advisors, being assigned the #4 priority through Dave’s FPU class might not sit well. But it makes good sense. I’ve learned that long-term investment accounts such as 401ks and IRAs are raided when clients fail to save sufficiently for emergencies. But if baby steps 1-3 were fully implemented, then long-term investing using retirement accounts might better serve its purpose. I won’t spend time in this article detailing why Dave Ramsey encourages Roth IRA and Pre-Tax retirement plan investing, but I fully agree with this point and I’ve advised clients on this type of investing for my entire career. So rest assured that the benefits of retirement account investing affords tax advantages that may be financially beneficial to the investor.

Baby step 5 focuses on college funding. It’s quite important that college funding by parents/grandparents is ranked below other vital financial priorities. But it goes against the grain when compared to the media messages that are conveyed. Even colleges have a formula which dictates to parents how much they are “expected” to contribute to their children’s college education. So according to Dave, college funding may commence only upon successfully completing baby steps 1-4, and no sooner. On that note, there are several different investment account types designed for college funding, including the Coverdell Educational Savings Account (ESA), Uniform Transfer to Minors Act (UTMA), and 529 College Savings Plans. Each account type has advantages and disadvantages and prior to opening any of these type of accounts, a conversation with your Financial Advisor and CPA is warranted.

Baby step 6 recommends paying off your home early. With baby steps 1-5 fully implemented, it’s time to increase payments and pay off your home early. Also, if you find yourself in a 30-year loan, consider refinancing to a 15-year loan. With lower interest rates, you might be surprised to learn that the payments are not that much more expensive. And the interest savings for a 15-year loan vs. a 30-year loan can be substantial.

Baby step 7 states to build wealth and give. Wouldn’t it be rewarding to give more money to your favorite charities? Perhaps you have a loved one that was saved by the caring hands of a medical provider and you would like to offer your financial support for future families. Personally, my family will be forever indebted to the folks at the NICU at Northside Hospital in Atlanta for the love and care they provided to my daughter, who was born prematurely. Most every one of us has a similar story or passion. But there are simple needs as well. Do you enjoy the service of a long-time waitress from your favorite coffee spot-like the Waffle House? Imagine dropping a $100 tip to that sweet waitress who always warms your cup without asking. It would be worth the $100 tip just to see her surprise. Although we can give regardless of our financial position, it takes wealth in order to make generous and life-changing gifts to churches, hospitals, and other charities. But once you progress past baby step 6, your finances should permit you to “live like no one else, so that you can give like no one else” (Quote by Dave Ramsey through Financial Peace University class videos).

Why HR Is Going to Save America’s Financial Future

It’s Up to HR to Save America’s Financial Future

It’s no secret that most Americans are struggling financially, even those with good jobs. The question is, what do we do about it? Obviously the status-quo isn’t the answer, because that’s how we got here.

The American workforce is in trouble financially, and it affects way more than the dream of a comfortable retirement. The current financial tools available to the average American aren’t designed to help with the basic first steps people need to take towards financial health. It’s not that the existing institutions are thoughtless, but it’s difficult to make any money encouraging people to do things that are free (like setting a budget or opening a free checking account).

In order for the problem to be fixed, a Hero needs to be found: a Hero who has it in their interest to help the American workforce, a Hero who has the tools to provide benefits to hardworking Americans, a Hero who has been overlooked in their capacity to help. That Hero is HR.

The Current Financial Crisis

Despite improvements in the economy and a decrease in the unemployment rate, 76% of workers are living paycheck to paycheck.1 Some of this results from stagnant wages against a backdrop of rising cost of living, but overspending also plays an important role. Most of us are programmed to spend up to our means, and with credit card and home equity lines of credit, it’s not hard to spend past your means.

Today’s workers are not putting funds aside for emergencies, which means that they are not prepared for expenses such as unexpected medical bills or car problems (63 percent of Americans say they’re unable to handle a $500 car repair or a $1,000 emergency room bill).2 Financial insecurity leads to significant personal stress, which impacts worker productivity. What’s really telling is this: The individuals who expressed concern about their financial health included those on the higher end of the income spectrum.3 This isn’t just a low-pay problem; it affects those who make larger wages. Remember that thing about people spending up to their means? Even if someone makes more money, they just tend to spend more.

Financial stress extends beyond immediate concerns related to living expenses. Most employees (61 percent) name retirement as a serious financial concern, and in Mercer’s 2015 survey, workers showed significant pessimism when it came to their opinions on how well their savings strategies are working: 39 percent said they expect to work at least part-time after retirement, and 35 percent are considering delaying their retirement due to financial concerns.4

401(k) Plans Aren’t the Answer

But wait, we have 401(k) plans, and they help people save for retirement! Although the 401(k) is a great tool with excellent intentions, the results of their almost 40 years in the workplace have been less than spectacular. Many employees simply aren’t ready or well-enough informed to take advantage of retirement programs. They can’t focus on retirement savings while monthly bills go unpaid. On top of that, the financial advice that comes with many 401(k) plans focuses on stocks, bonds, allocations, and annuities: completely missing the mark.

Many employees lack the personal financial knowledge to determine how much to save, how to properly use credit, how to get out of debt, and how to manage any remaining income. Advice on these topics is not usually offered as part of the 401(k) package, meaning the 401(k) doesn’t get used by many employees (31% of employees have $0 saved for retirement).5 After all, who can have a conversation about bond allocations when they can’t afford their rent or mortgage? The 401(k) plan is not the Hero we need.

We Won’t Be Saved by Standard Financial Services

There are many financial products and services in the marketplace. Unfortunately, because of the small margins that financial institutions make off of their services, people that don’t have large amounts of money to invest aren’t profitable for those institutions to focus on. Because of this, the current financial institutions are not incentivized to invest in creating and marketing solutions geared towards people on the lower end of the income spectrum. In addition, many of the services that people need (free checking accounts, budgeting tools, etc.) are very difficult to get any sort of revenue from. There’s just no profit in encouraging people to do free things.

Unfortunately, most profits derived from serving the under-banked tend to come from predatory products like high-interest pay-day loans and other detrimental products. These aren’t the tools that American workers need to improve their financial situations. In fact, they frequently make money problems worse for people. The existing financial services aren’t the Hero we need.

HR to the Rescue

HR professionals have a special interest in providing financial wellness to workers, because HR’s goals are furthered by the effects of good financial health in the workforce. Personal finances are a major driver of employee engagement. Employees that don’t have money troubles on the brain can focus on efficiency and productivity, while an employee worried about making this month’s rent is far less likely to be giving their all at work. Improving the financial wellness of employees results in lower overall expense to the organization through reduced absenteeism, presenteeism, and turnover.

HR has an extraordinary chance to change how the financial story ends for many Americans. By offering comprehensive, easy-to-use financial wellness programs, HR can help staff members improve their personal finances. Such programs provide guidance through every level of financial need, resulting in a workforce with fewer immediate financial worries, allowing them the ability to improve today as well as look forward to a well-funded retirement. HR and the company providing the financial wellness program stand to benefit from the results of a financially healthier workforce.

HR has frequently been thought of as an office that handles a few essential personnel functions, deals with compliance, and brings in new employees. It wasn’t clear before that HR has the keys to a solution that could impact the entire country. The solution comes through HR’s ability to provide benefits, HR’s need for happy and healthy employees, and HR’s impact on every worker in America.

Finally, we have it! We’ve found our Hero who has it in their direct interest to help the American workforce, our Hero who has the tools at their disposal to provide benefits to hardworking Americans, our Hero who has previously been overlooked! HR is our one great hope to get off the path we’ve been going down. The impact after just a few years of widespread adoption of financial wellness benefits at American corporations can mean the difference between a country that struggles to support its workers and retirees, and one that can boast strong finances for everyone. HR to the rescue!

Creating a Strong Financial Future

If current financial trends continue, the average American worker will continue to struggle with day to day expenses and a comfortable retirement will be more out of reach than ever before. Increased debt, leaner retirements, and continued financial stress are in our future.

An alternative is possible. HR has an opportunity to supply the tools needed to achieve financial security for millions of hard-working Americans. By offering relevant, personalized financial wellness solutions today, HR can create a better future in which employees enjoy less stressful financial situations and look forward to a comfortable retirement, thanks to better saving habits, lower debt, and well-funded retirement accounts.

The Most Important Thing Your Doctor & Lawyer Have That 99% of Financial Advisors Don’t – Fiduciary

FIDUCIARY – A Financial Advisor held to a Fiduciary Standard occupies a position of special trust and confidence when working with a client. As a fiduciary, the Financial Advisor is required to act with undivided loyalty to the client. This includes disclosure of how the Financial Advisor is to be compensated and any corresponding conflicts of interest according to Focus On Fiduciary – an industry watchdog resource organization.

If you haven’t heard of a Fiduciary Standard of Care, you haven’t done your homework on selecting your financial advisor. The single most important thing your doctor, your lawyer, and your accountant (your accountant has an implied Fiduciary Standard) have that 99% of all financial advisors DO NOT have is the Fiduciary responsibility to you, their client. Every financial advisor should be held to a Fiduciary Standard, but 99% of them will not put it in writing, legally binding them to that extra level of care and responsibility.

So just what is a Fiduciary Standard? A Fiduciary Standard is the absolute and undeniable obligation to provide you (the client) the most appropriate financial advice and guidance REGARDLESS of personal gain (compensation/commission/fees/perks, etc.). A Fiduciary Standard entails acting with complete disregard as to how the recommendations and planning advice will affect the planner, but rather how those recommendations and the planning advice will benefit the client financially and accomplish the clients financial goals. A Fiduciary Standard requires a complete and consistent focus on the client from the beginning stages of the financial planning and investment process, through the execution, implementation, and monitoring of the clients financial plan.

What would you think, how would you feel if you went to your doctor with a life threatening condition and they weren’t held to a Fiduciary Standard of Care? What if they received compensation or perks for recommending one drug over another? What if their income was dependent on which drugs or course of treatments they recommended? What if they needed to sell “X” amount of “ABC” drug and the generic counterpart never entered their mind?

You’d feel betrayed, you’d feel distrust, you’d think your doctor didn’t have your best interests at heart, you’d be hesitant and concerned as to where to find real honest medical advice. You’d have every right to feel that way.

Attorney’s have a similar Fiduciary responsibility to their clients. An attorney must act with good faith and in their clients best interests always. The client is trusting the attorney to represent them in the most prudent manner possible, and the attorney must not breach this confidence placed in them by their client.

Yet everyday the average consumer with financial and investment needs signs over their financial security and future to an individual not held to a Fiduciary Standard of Care. Every day the average consumer continues to re-hire that same NON-Fiduciary financial advisor – because not firing a non-Fiduciary advisor is the exact same as re-hiring that person everyday that passes. Every day millions of investors naively but trustingly believe they’ve received the most prudent and unbiased advice possible, when this isn’t necessarily the case.

Your doctor has a Fiduciary Duty, your attorney has a Fiduciary Duty, and your accountant by implication is generally held to a Fiduciary Standard of Care as well.

Why would anyone accept anything less than a complete acceptance of the Fiduciary Standard on the part of their financial advisor? Simple – 99% of financial advisor “professionals” choose not to (or cannot) adhere legally (or philosophically) to a true Fiduciary Standard. They’re enriched by large commissions, perks and other hidden fees to sell products rather than solve problems. Their incentive is lining their own pockets, not helping you achieve your financial and retirement goals. These financial advisors are paid from the Wall Street firms or insurance companies they work for, not their clients.

Most consumers assume the Fiduciary level of responsibility and duty is already present in the financial services industry, and they’d be right to a limited extent. The Investment Advisors Act of 1940 mandates that to offer financial advice one must be a Fiduciary. To avoid this higher standard of care and responsibility the securities industry created what was coined the “Merrill Lynch Rule”, exempting certain types of fee-based accounts from coverage under the Investment Advisors Act of 1940 (labeling them brokerage accounts rather than advisory accounts).

The Merrill Lynch Rule was overturned in May of 2007 thanks in part to the Financial Planning Association’s legal efforts. Wall Street does NOT want the imposition of a Fiduciary Standard because it clearly opens them up to more regulation and lawsuits from many standpoints, including a breach of fiduciary responsibility and suitability. But the simple fact remains that a Fiduciary Standard protects you, the consumer of financial and investment services.

Although the Merrill Lynch rule was overturned, there still today does not exist any reasonable or consistent set of Fiduciary Standards in the financial planning and investment management industry. The primary reason this issue is so challenging for the industry to manage is compensation. If a financial advisor is paid directly from the client (or the financial advisor’s only source of income is through fees from the client in some form), they can in theory embrace a Fiduciary Standard. However, if a financial advisor is paid by some Wall Street investment banking firm or insurance company – their responsibility is to their employer who signs their paycheck first!

If you believe that extra level of care and responsibility should be present in your financial advisor, demand clearly and in writing from them that they agree to be held to a Fiduciary Standard as described under the Investment Advisors Act of 1940. Demand they put your best interests first. Demand they provide you exceptional and unbiased financial and investment advice.

A Fiduciary Standard is the highest standard of care, duty and responsibility in a relationship. Anything less than a Fiduciary Standard of care from your financial advisor is unacceptable. This is your financial future, your nest egg, your retirement, your family, and your security we’re talking about…right? Isn’t it time you expected more from your financial advisor?