Only 17% of financial advisors are legally required to put your interests above their own.* (In finance-ese, that’s called a fiduciary.) Is your financial advisor a fiduciary? Does it matter?
Behind the curtain
“To make money!”
The President of the Southwest Region answered his own question. He had just asked a room full of financial advisors “Why did you get into this business?”
I was appalled. “To help people” was my instinctive answer and the only right one as far as I was concerned.
Before The Financial Zen Group, I started my practice at a large Wall Street firm surrounded by other “corporate” financial advisors. We had monthly sales meetings and regularly got incentivized to “recommend” the products that corporate wanted us to push.
The Regional President thought nothing of it. He had simply echoed the sentiment found throughout brokerage firms and insurance companies across the country.
It’s the mentality that 83% of financial advisors operate in.
Diamonds in the rough
I’m living proof that it’s possible to work at a place like that and still put your client’s interests first. And I worked with others who also avoided the kool-aid, forewent sales incentives, and just focused on doing right for their clients.
But we were few and far between.
How to spot a fiduciary
There are two types of financial advisory firms – 1) broker/dealers and 2) Registered Investment Advisors (RIA).
Broker/dealers are what I just described. They are the large brokerage firms and insurance companies that make up 83% of the industry. They are regulated by the “Suitability Standard” which is a glorified version of “buyer beware”.
RIA’s are the 17% minority. We are independent financial planning firms who exist to serve clients, not shareholders. We are regulated by the “Fiduciary Standard” which is a legal obligation to put clients’ interests above their own.
Why it matters
We just completed our first regulatory audit and I have never been prouder to call us a fiduciary.
All Registered Investment Advisors are subject to routine audits by the regulators every 4ish years.
It’s not hyperbole to compare it to an alien probe.
They examined every sheet of paper anyone has signed. They looked at every penny we’ve ever charged a client. They scrubbed our financial statements to review our financial stability. They studied client’s reports and financial plans. They scrutinized our marketing and advertising.
I mean they got in there.
I was thrilled to get audited. Wait. What?!
While I may work for myself, I actually do have a boss. The regulators will shut me down if I’m not doing my job to serve clients and ensure everything we do is in the client’s best interest.
So getting an A+ on our regulatory audit is confirmation we’re doing things the right way.
But I already knew that. More importantly it felt like we were finally part of the club. It felt like a right of passage.
The 17% of us who are fiduciaries belong in an exclusive club that will prove to be on the right side of history. And after going through our first audit, The Financial Zen Group is a card-carrying, certified member.
Is your financial advisor a fiduciary? Does it matter?
That’s up to you to decide, I suppose.
It’s been 4 years since I’ve had to endure a sales meeting and the obligatorily clapping for the “advisor” who won that month’s sales contest.
Personally, I couldn’t imagine going back to that world or how anyone would trust their family’s finances to an advisor who’s not a fiduciary.
But that’s just me.
