www.herald-journal.com
Your advisors interests vs. your interests
Feburary 6, 2012
by Brian Wolf

Let’s start today with a little history reminder.

The year is 2008; the year of the too-big-to-fail scam. Major banks and investment companies file for bankruptcy. Unemployment soars, the housing market tumbles, and the stock market crashes. In what has to be the least surprising outcome of the 2008 financial fiasco, the big Wall Street firms have just successfully applied enough pressure on the SEC to get them to stall a proposed rule to make all financial advisors “fiduciaries.”

So what is a fiduciary and why should you care? In today’s world, most financial professionals aren’t required to sell you products that are in your best interest. They are allowed to sell you products that are in their best interest instead.

I know this may sound a little crazy, but it’s true. Only agents that are fiduciaries are required to do what’s exclusively in your best interest. Is it any wonder why there are forces at work to do away with this provision of the Dodd-Frank financial reform law?

Currently, the only individual that is required to work as a fiduciary for you is someone that is a registered investment advisor (RIA). This means that from your insurance agent to your stockbroker, unless they are also a registered investment advisor (very few are), they can legally sell what’s in their best interest over what’s in your best interest.

What exactly does this mean for you? The “fiduciary” standard is one in which your financial advisor must put your interests first. Wall Street and the insurance industry don’t have that same responsibility. They currently have something called a “suitability” standard. With this standard, they only have to put you in investments that are considered “suitable” for your circumstances.

Here is a good example of how they differ. Let’s say that you wanted a large-cap mutual fund as part of your portfolio. A Wall Street firm advisor can use any large-cap fund, and you can bet they’ll be searching for the one with the highest commission or one from a mutual fund company that paid the firm millions of dollars to be put on their “preferred” list. The Wall Street firm and advisor can be focused on the large-cap fund that is best for them. A fiduciary, on the other hand, would compare all large cap funds out there to find the one that would represent a “best fit” for you. They are focused on the fund that is best for you.

So what do you want? Do you want your advisor looking for investments that are best for them? Or best for you?

Wall Street, by their actions, has clearly voted where they stand. The question is – will you continue to put up with it? Because this can be a little complicated, please give me a call and I will give you a free analysis of your portfolio to see if you have only investments that are in your best interest.


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