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More on the Fiduciary Problem

By Rick Kahler MS CFP® http://www.KahlerFinancial.com

If you consult an attorney or a doctor, you don’t have to ask whether their advice is intended to serve your best interests.

It’s understood they have a responsibility to put your welfare first.

The Financial Services Sector

There is no such understanding when it comes to financial services. Some financial advisors have a fiduciary duty requiring them to act in your best interest. Others do not. Even more confusing, the same professional can be held to a fiduciary standard at some times but not others. It’s hard for consumers to know the difference.

My Talk

Last week I promised a “five-minute” solution to clear up this confusion. Here it is: Before engaging any financial advisors, ask them to sign a written statement that they are fiduciaries, that you are a client, and that either the advisor receives no income from commissions or any commission income is trivial (with “trivial” clearly defined).

If advisors sign such statements, you can be assured they have a fiduciary duty to you as a client. If not, you then understand you are a customer and “caveat emptor” (buyer beware) applies.

The Conundrum

Now – a little background on the confusion. It exists largely because of the influence that large financial institutions (who earn revenue through the sale of financial products) have on legislators.

The IAA of 1940

For example, the Investment Advisors Act of 1940 requires that anyone giving investment advice must be acting in a fiduciary capacity. The intent was to separate the financial salespeople, who had significant conflicts of interest, from the investment advisors, who had few to none.

If you know very little about financial products, would you rather be educated as the customer of a commissioned salesperson or the client of a fee-for-service advisor? Hands down, you’d want the fee-for-service advisor.

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Financial Product Sales

Of course, the financial institutions selling products understood this. They were able to influence the drafting of the 1940 Investment Advisors Act, to exclude “any broker or dealer whose performance of such [advisory] services is solely incidental to the conduct of his business as a broker or dealer.” So if salespeople just happen to give some financial advice that is “incidental” to the sale of a product, they and their companies are not held to the fiduciary standard. Congress allows financial companies to advertise as if they are fiduciaries while their sales forces are not held to a fiduciary standard.

Certified Financial Planner® Designation Conflict

The same conflict arises in some professional designations, like the Certified Financial Planner® designation conferred by the CFP® Board. The designation initially certified the completion of training in financial planning. In 2008 the Board added a fiduciary requirement to the designation.

The Caveat

However, CFP®’s are only held to a fiduciary requirement when they are doing what the CFP® Board defines as financial planning. If a CFP® professional is giving advice to a client, the fiduciary standard applies. Yet the same professional can sell the same client an annuity with high fees and high commissions, even if the product may not be in the client’s best interest, as long as no “financial planning” is part of the transaction. The result is significant confusion for consumers.

My Suggestion

The bottom line is this: when you look for financial advice or financial products, don’t assume the advisor is looking out for you. It’s your responsibility to find out whether any financial professional owes you a fiduciary duty.

Assessment

So, I suggest you ask directly, “Am I a customer or a client?” The answer is almost always “a client,” as most financial services salespeople honestly don’t know the difference. After you explain that difference, ask them to verify their fiduciary duty in writing. That five-minute solution may have a lasting impact on your financial well-being.

Link: http://www.CertifiedMedicalPlanner.org

More:

• Enter the CMPs
• About Fiduciary Benchmarks, Inc
• An Interview with Bennett Aikin AIF®
• Fiduciary Financial Advisor versus Non-Fiduciary FAs
• The Uniform Prudent Investor Act versus Fiduciary Accountability
• Accredited Investment Fiduciary Analyst™
• http://www.CertifiedMedicalPlanner.org
• More on Doctors and Personal Net Worth
• Physician Assets, Liabilities and Personal Net Worth
• MD Salary versus Net-Worth Conundrum [.ppt slide-show presentation]

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

• DICTIONARIES: http://www.springerpub.com/Search/marcinko
• PHYSICIANS: www.MedicalBusinessAdvisors.com
• PRACTICES: www.BusinessofMedicalPractice.com
• HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
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• ADVISORS: www.CertifiedMedicalPlanner.org
• BLOG: www.MedicalExecutivePost.com
• FINANCE: Financial Planning for Physicians and Advisors
• INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

TEXT BOOK

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants

Filed under: Ethics, Experts Invited, Financial Planning | Tagged: Ben Aikin, Centre for Fiduciary Excellence, fiduciary accountability, Rick Kahler CFP® | 4 Comments »