If you know what a fiduciary is, you’re in the minority of Americans. In April of 2016, entrepreneur and life coach Tony Robbins stood on a Manhattan street and interviewed passersby, finding that the only respondent who could define the word was a fiduciary. Although it’s not a prayer, it is, as one respondent guessed, “something awesome”.
Obviously, there are a lot of questions on the topic that need answering.
So, what is a fiduciary?
A fiduciary is a financial advisor who is required by law to put the client’s interests ahead of their own, and to disclose any possible conflicts of interest.
Don’t all financial advisors put client interests first?
Unfortunately, this is not the case. The majority of financial advisors are held to a suitability standard. Meaning, these advisors need only suggest items that are suitable for your objectives, income level and age. Suitable doesn’t always mean best. Additionally, they do not need to disclose any conflicts of interest.
Is disclosing a conflict of interest that important?
It really is. According to a recent article by Bloomberg, there are half a million brokers who earn commissions if they can convince you to buy an expensive alternative to the thriftier, better-performing investment options on the market. That’s more than ten times the number of advisors who adhere to a fiduciary standard.
Government research estimates that consumers lost $17 billion a year to conflicted advice in the recommendations made by brokers and sales agents posing as advisors related to retirement plans. This, to put it bluntly, helps explain why so many Wall Street brokers are insulted if their annual bonus is in the low seven figures.
Why is working with a fiduciary so important?
Let’s put it in perspective:
Say you’re looking for a restaurant for dinner tonight. You want a place that’s not too far away, and is open on a Thursday night. A quick online search will turn up a whole host of “suitable” options. But how will you know which one is going to best cater to your customer experience? Do you take the top “sponsored” result on your search? Or do you turn to outside resources, like Yelp, where feedback is based on the diner experience, not sponsored by their marketing department? More than that, you probably confirm multiple sources — asking your foodie friend for a recommendation, and checking the restaurant’s rating on Google, too. You don’t trust a single biased source for dinner, and you certainly shouldn’t trust an advisor who has motives other than your best interests in mind.
How do I find out if my financial advisory is a fiduciary?
Just ask! If you are currently working with or looking for a new financial advisor, simply ask, “Are you acting as a fiduciary at all times? Will you sign an oath stating that you will always put my interest above all others?” They’re obligated to answer, and if they can’t, or won’t, be prepared to find someone who can, and will.
Remember, at Castle Rock, your interests always come first.