Here 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.”
But there is good news! You don’t have to wait for anyone to make a new rule. You can use the following questions from the Department of Labor to determine if you want to work with a particular advisor:
Do you consider yourself a fiduciary?
• If not, why not?
• Are you willing to act as a fiduciary with a duty to act solely on my behalf?
• Are you willing to disclose to me any conflicts of interest that may interfere with your acting solely on my behalf?
• Are you willing to put this commitment in writing?
How are you compensated?
• Do you earn fees or commissions based on the number of products that I buy or the size of my investment?
• Will you earn a higher fee or other type of compensation if I invest in certain products you recommend or will you receive fees for services related to specific investment products?
• Will you provide a list of the fees and commissions you receive either directly from me or from other sources in writing?
Are you a licensed or registered investment adviser?
• Are you registered with the State, U.S. Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), or the Certified Financial Planner Board of Standards, Inc. (CFP Board)?
• For how long? What is your experience?
• Who supervises you, or, are you a sole practitioner?
• If a sole practitioner, do you have professional liability insurance?
• Have you (or your firm) ever been disciplined? For what?
Carefully review the information you receive to look for fees and expenses being charged and possible conflicts of interest. If the information you receive is not clear or you see things that make you uncomfortable, ask questions. If the answers don't ring true or make you uncomfortable, shop around until you find a relationship that gives you confidence that the adviser is working in your best interest. And remember -- Trust but verify!