Tag Archives: fiduciary standards

What’s the Value of Conflict Free Advice?

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Whenever conflicts of interest exist you can be sure that some people will take advantage of them. The pension consulting business has a laundry list of possible conflicts: Pay to play, proprietary products, revenue sharing, and commissions to name just a few. Disclosure is almost nonexistent, and fiduciaries are generally inept. In theory, pensions are subject to extensive oversight, but legislation and regulatory enforcement badly lag the situation on the ground. With both regulators and plan sponsors asleep at the switch, it is hard to imagine a more target rich environment for a sales organization.

For plan sponsors, the Gordian knot is a simple exercise in comparison to untangling the conflicts embedded in a bundled product pension solution. Half of pension consultants receive compensation from the managers that they recommend. So, it shouldn’t be a big surprise that those conflicts impact both price and performance in a meaningful way. Continue reading →

The Accidental Solution to the Retirement Problem

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RetirementThe greatest thing about defined-benefit plans was that workers didn’t have to do anything other than show up for work to get the desired result: a guaranteed income for life. It was a good system in that most workers didn’t want responsibility or control, just a secure retirement.

The defined-benefit plan is gone, and it’s not coming back. It’s been replaced by the 401(k), an accidental solution to the retirement problem. As a replacement, it’s been a dismal failure. The worker is still just looking for a secure retirement with little to no input required. Unfortunately, very few workers are on track to get that these days. Continue reading →

Do I Have a “Real” Financial Advisor?

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A Watchdog visitor questioned whether the person providing him with financial advice was a real advisor. He thought the person was an advisor, however a business associate told him the person was really a sales rep.

He should be concerned. If the person misrepresented his role, then his financial advice may also be tainted.

Very few consumers would be comfortable knowing a sales rep was influencing or controlling their investment decisions. However, this is why reps misrepresent roles. They want to minimize sales resistance and maximize incomes.

How do you know the person advising you is a “real” advisor? Ask three questions and make sure the person responds in writing. Do not accept verbal responses. You want a written record.

What licenses or registrations do you hold? Sales reps hold Series 6 or Series 7 licenses that limit them to selling investment products. Real advisors are Registered Investment Advisors or Investment Advisor Representatives that permit them to provide financial advice and ongoing services.

How are you compensated? Sales reps only method of compensation is commissions. Real advisors are paid with fees or commissions, but primarily with fees.

Are you willing to acknowledge you are a financial fiduciary in writing? Advisors will answer Yes. Sales reps will answer No. Fiduciaries are held to the highest ethical standards in the financial services industry.

Remember, get the responses in writing. When it comes to your assets, trust what you see, not what you hear.

Will Consumers Get Shafted with the new Financial Reform Bill?

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Before last week’s financial reform bill passed, fee-only Registered Investment Advisors (RIAs) acted as acknowledged fiduciaries. RIAs provide full disclosure to investors about how they are compensated and should have no conflicts of interest when working with investors. In other words, they look out for the investor’s needs first and foremost.

Under the new financial reform bill that was recently passed, it will now allow brokers (stock brokers, sales reps) to sell investors commission-based products as well as proprietary products while acting as a fiduciary. Wait a minute! How can brokers peddling high commission products do this with an investor’s best interests at heart? Odds are that they won’t be able to and investors will once again get the short end of the stick.

This will make the task of sorting out highly qualified and ethical advisors from those who are only looking out for their own wallets, as anyone will be able to call themselves a fiduciary. More on this topic to follow as this unfolds.