American Capital Planning Blog

ACP Blog, created by Bonnie Ashby Sewell, CFP®, CDFA™, AIF®

Fools and Fiduciary

iStock david and goliath 300x199Here we are again. Apparently financial services firms are staging their usual hissy fits over being asked to level with consumers about who and how they actually serve or fail to. The shocking headline in a recent Wall Street Journal article indicates “Brokers Would Have to Put Clients’ Interests First” and that’s just making the big boys very, very unhappy.

Remember one of this firm’s mantras? Ask more questions, expect better answers. Let’s do a quick tour of Financial Services in America, circa 2015:

You as the consumer get to figure out if you can,

• What qualifications make the person in front of you ethical, experienced and education as anyone can call themselves a financial planner
• How your financial professional gets paid whether through fees or commissions on products they sell you
• Whether the advice you receive is covered under the ‘suitability standard’ or ‘fiduciary’ standard
• How much you’re paying in fees and/or commissions

This is a real David vs. Goliath issue with the entrenched Wall Street interests fighting to keep the old rules and threatening to take their balls and go home by suggesting everyone who isn’t wealthy will lose access to professional advice. It will take consumers insisting on the fiduciary rule for it to happen. John Bogle of Vanguard fame has long beat this drum on behalf of consumers. Robert Port, an Atlanta attorney who represents investors harmed by the misconduct of their stockbrokers or advisors, believes the financial services industry “sells trust, but only wants to be tied to the suitability standard.”

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Save U.S. (or US)

Save 300x167Let’s meet two smart ladies, Grace and her best friend Anna. Both 25, they’ve begun working after college and Grace earns $45,000/year while Anna is hitting it out of the park earning $65,000/year. Grace and Anna have a lot of fun together especially when they’re shopping. But recently, Anna noticed that Grace is less fun and doesn’t want to shop like she used to. Neither knows what the other one earns or spends but we do. We can see that Grace spends $2,000/month and lives with an older sister, while Anna spends $4,000/month and carries a balance on one of her department store cards. They’ve each talked about saving more but only Grace has actually begun to do so. She manages to save 20% of her gross income or $750/month. Anna says she’ll start saving in a few years when she hopes to earn even more. Grace misses having new things and shopping with Anna but she has seen her parents struggle with not having saved enough and doesn’t want that experience.

Fast forward to 2020 and Anna is now earning $78,000 while Grace has improved her earnings to $55,000. Anna doesn’t have any savings but is willing to start. Grace has consistently saved $750/month for the last five years, earned an average of 7% on her invested savings and now has $53,699 in savings.

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