What Is A Fiduciary And Why should You Care?

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I recently returned from a business trip to San Diego hosted by one of the custodians my firm works with, TD Ameritrade Institutional. The reason I enjoy this particular trip is because TD Ameritrade has supported and fought to bring the Fiduciary role of advisors to the nation’s attention as well as with our congressional leaders. No other custodian has pushed as hard or has put their money where their mouth is as much as much as TD Ameritrade to fight to change the laws in favor of a Fiduciary standard for all investors. This is why I decided to write this article on what is fiduciary and why should you care.

But, this is not one of the trips to attend and then maybe go to one meeting per day and spend the rest of your time lounging by the pool.

Oh, nooooo… It was a long three days of mostly education and a little networking with other advisors.

I received almost 20 hours of continuing education for my Certified Financial Planning continuing education requirement in only three days… Whew!!!

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And, when I was done at the end of the day I was able to capture the pictures you see here each evening in and around the area. San Diego is a beautiful city with hundreds of things to do. Next time I will try to ease up on the workload and enjoy the city a little more.

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What Is A Fiduciary?

Many of my clients have heard this story, but I believe it is so important for the public to understand that I would hope you bear with me if I repeat myself.

According to Wikipedia, “a fiduciary is a legal or ethical relationship of trust between two parties“. Typically, a fiduciary prudently takes care of money for another person.

My advisory firm, Broussard Financial Group (BFG), acts in a fiduciary capacity as a Registered Investment Advisor for our clients who invest not only their money but their confidence, good faith, reliance and trust in us. As a fiduciary, BFG is required to act at all times for the sole benefit and interest of our clients to whom we owe a duty of undivided loyalty and faith. We are prohibited from engaging in any activity that conflicts with the interest of any client and we work hard to fulfill that obligation.

Why Should You Care?

It is important to understand the roles many so call “advisors” play when you are seeking financial planning or investment advice. Most clients that I explain this to are shocked to learn that not all “advisors” are fiduciaries. Many in the investing public believe that all financial advisors should be acting in the client’s best interest, when in fact only a small percentage are true fiduciaries.

To make matters worse, many stock brokers have become fiduciaries, but only for their fee-based accounts. They can then switch hats from a fiduciary and become a stockbroker and sell their clients anything they feel is “suitable” and most investors will not know which is which until things go horribly wrong.

For example, I recently worked with a client in designing a him a financial plan. His last advisor told him he was a fiduciary and after several meetings and many hours of supplying data to him, the advisor switched hats and his recommendation was for the client to buy a large life insurance policy through which he was probably going to earn a large commission. The client did a little more research and decided if he was going to buy a life insurance policy he wanted the best deal and when he asked this advisor why he didn’t quote other companies so that he could get the best deal, the advisor said “Oh, I don’t represent any other company”. Then the client finally realized that the only way to be assured that his advisor is a true fiduciary and won’t switch hats with him is to hire a Fee-Only advisor. So he went to NAPFA.org and began his search and saw that my firm is Fee-Only and interviewed me and we began building his financial plan.

Another example was a financial planning client that sought me out with a similar story. This client listened to an advisor on the radio each Saturday for months discussing financial matters and decided that he would schedule a visit his firm to see if they could help him. The client was very risk averse and was scared of the stock market after the 2008 crash. After meeting with the advisor the client decided to invest with his firm and ended up being sold an annuity. Then about one year later he started to feel something wasn’t right. He called and asked several questions about possible withdrawing his funds and was shocked to learn that he was limited to what he could withdraw and that the surrender charges on his account would last 15 years! He wouldn’t be able to completely withdraw all his funds until he was 84! He began his search and found the NAPFA website as well and located my firm and we put together a plan that works for him. If this firm was a true fiduciary, they would have been prohibited from this type of investing for a 69 year old retiree.

I could tell you hundreds of stories like the ones above about stock brokers and insurance sales people that I have come behind and tried to correct so called “suitable” investments.

Please don’t misinterpret that I think every stock broker or insurance sales person is out to trick the public, because I don’t.

But, when you have the largest brokerage and insurance companies in the world, taking advantage of average investors it is hard not to get upset.

I hope, by now, that you have become educated to the point of realizing that doing a lot of research and making sure you are working with a Fee-Only firm before signing an agreement with a brokerage firm or insurance company is clearly an option that you should pursue.

In closing, I hope that if you are an existing BFG client, you are satisfied with my efforts to be your investment fiduciary, and I would appreciate any feedback on how we may improve upon them. If you are a prospective BFG client, I hope that I have convinced you of the vital importance of having a reliable fiduciary who will always sit on the same side of the table with you.

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Take Care,

Jerry Broussard, CFP®

 

 

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