A Reiteration

At the risk of being redundant, I am a fiduciary when we work together. Among other things, this means that I am legally required to put your interests ahead of my own and I must disclose any material conflicts of interest in our relationship. Additionally, I'm also fee-only, which means that I work directly for you and not a brokerage firm or some other third party. I know many of you are already aware of this, but there are two reasons I wanted to reiterate and I figure this is a good forum to do so.

I've been getting a fair amount of questions about "fiduciary" lately so I wanted to explain how it works and address some of the practical implications associated with this status. The first is that as a fee-only fiduciary advisor I work for you and owe you a duty of loyalty. No person or firm stands between us restricting investment options, services, or charging hidden fees. This stands in stark contrast to the bulk of the financial services industry which is mostly comprised of employee advisors (brokers) working for brokerage firms, banks, and insurance companies. Their business card might say "Advisor", but it should realistically and transparently say "Salesperson".

An employee advisor owes their employer a duty of loyalty first, client second (or maybe third, fourth, who knows...). At the end of the day, the employee advisor has to keep their bosses happy, and that typically means bringing in an increasing amount of revenue (commission, fees, etc.) to the firm. The employee can only work with so many clients, so they either focus on doing lots of commission-based transactions in client accounts, or increasing the amount of money existing clients pay the firm by selling them (often multiple times over multiple years) expensive investments they may not need. This often leads to excessive "cross selling" of insurance products, mortgages, managed accounts and other fancy concoctions that drive extra revenue. Again, the employee advisor's primary job is to make money for the employer, and clients pick up the tab.

Yes, there are lots of swindlers out there, but the typical employee advisor is often a good person stuck in a conflicted situation, whether they realize it or not. The language of the industry is very friendly and often focuses on providing clients with needed help and advice. At every step along the way, however, the employer is controlling the process, training the advisor and incentivizing different products to offer, all in an effort to squeeze as much profit out of the client relationship as possible. Of course, this is business and the firm should make money, but this structure leads to many potentially negative consequences, most of which the client doesn't realize until well after the fact.

This structure is fundamentally different from how I work with you. When we work together you're paying me to offer you the best investment and financial planning advice possible, not to sell you products. For example, when we talk about investments, I'm not thinking, gee, I need to make my bonus so let's convince this person to buy an annuity because I heard about one that will pay me a 7% upfront commission and then more money in the years to come. Since I'm not earning extra commissions or any other incentives along the way, I don't use the expensive options sold by the rest of the industry. When we do planning work together, the planning process isn't a means to sell you additional products or services. Instead, our planning work is, wait for it... planning. This leads to a much cleaner relationship and, I think, yields you more in the long run, both in terms of investment return and progress toward your goals.

I also think, although my opinion is obviously biased, that being a fee-only fiduciary advisor is a much simpler and straightforward way to do my job. There's less confusion, more transparency, and way fewer conflicts of interest.

Government regulators are trying to help investors by reducing conflicts of interest in the industry, but with entrenched interests fighting the effort, the process is molasses-in-winter slow. This leads to my second reason for bringing all of this up.

The fiduciary concept has been getting a lot of press lately. You may have heard or read that recent government efforts to institute a so-called "fiduciary rule" for retirement accounts had been stalled by the new administration. This is true but a version of the rule actually goes into effect next week, after what has been a stretch of delays. While this is good news, the problem is that the teeth of the rule don't come in until January 2018, and many industry commentators are thinking there's a chance the new rules will be gutted, or the teeth blunted, before then. If so, it would be another good regulatory idea unrealized.

So, time will tell what happens with regulatory changes but for you it's just interesting information. Why? Because by working with me you already have a fee-only fiduciary advisor in your corner. Most of the new rules will, if the teeth stick around, make it harder for brokers to gouge their clients, but that's already a non-issue for you. Let's hope that in time the millions of Americans who need unbiased and transparent retirement advice will get it. Until then, for me it's fee-only and fiduciary all the way all the time.

Have questions? Ask me. I can help.