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As Investors, Who Really Has Your Best Interest?

Mark J. Smith, CFP®, CPA/PFS, CIMA®
August 8, 2018

Whether it’s your money, legal counsel or even your personal trainer, many of us assume that companies who offer you a service to achieve a personal goal and claim to be your “trusted adviser,” will always put your best interest first. Well, that’s not always the case.

As investors, trusting your investment adviser is crucial - especially when it comes to your long-term wealth. According to a 2017 report by the White House’s Council of Economic Advisers, “Some investment advisors, motivated by commissions, bonuses, or other financial incentives, steer clients into products that aren’t in their best interests, resulting in roughly $17 billion in lost retirement savings per year.

So how do you know if your prospective or current investment adviser can be trusted with your assets? A recent article from Barron’s provides insight on the importance of the investment-advisory industry’s standard of service, and what it means to you.

  • It’s up to you: In March, a ruling shut down a law that would have required investment advisers to act as fiduciaries. This means that investment advisers are not required to act in the best interest of the party whose assets they are managing – neither legally or ethically. The Securities and Exchange Commission is currently working on a new proposal, but until then, it’s more important than ever to make sure you ask the right questions to understand the commitment to standards that each firm practice. 
  • Transparency is not requiredFiduciary vs. Suitability: The fiduciary standard is future-focused, putting the client’s long-term interest first and disclosing any conflicts of interest. A suitability standard is more single-transaction-focused, believing an investment is suitable for the client, not requiring the client is made aware of less expensive or more efficient options. 
  • Don’t let marketing fool you: Imagine you are at the grocery store searching for a healthy food option. We all know that just because it says, “low calorie” or “organic,” it may not be the healthiest option. The same concept applies to the financial industry. Many firms may call themselves a “wealth adviser,” however, this does not mean they are held to the level of standards you are seeking. 
  • Ask your adviser to sign the dotted line: Registered Investment Advisors (RIAs) are the only advisors legally held to fiduciary standards. Unfortunately, these standards only apply to investment management, not broader financial planning. To show the value and importance of fiduciary obligations, many RIA firms have gathered together a Fiduciary Oath. This document promises loyalty, good faith and prudence to its clients. Bottom line, ask your firm to sign one. If they don’t, be cautious and investigate. 
  • Know you have options: There are a number of factors to consider when determine the right investment approach for you.  These include access to a wide-range of investment options, the fees involved, and the security of your assets. Typically, RIA firms charge by percentage of assets, motivated by the care-taking of a holistic, comprehensive wealth management plan as you pursue your long-term goals.  For those with more modest investable assets or more straight-forward financial needs, non-RIA firms can charge a flat-fee.

Remember, it’s important to find a financial advisor who puts you first.  M.J. Smith & Associates is a Registered Investment Advisory firm (RIA), and we work with our clients every step of the way for long-term wealth planning.  We also offer online investment-only services for those with a more modest portfolio size or more straight-forward financial needs.

If you’re interested in us reviewing your portfolio and/or discussing options to help you understand the impact of your investments, please contact us today and we’d be happy to talk with you.

 

 

This information does not purport to be a complete description of the developments referred to in this material. Links are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James.

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