It’s now law. More financial professionals are going to have to act in their customer’s best interest. For those of you that like to read the news of the day, it was just a couple weeks ago that the Department of Labor announced a new fiduciary standard that governs corporate retirement plans, like 401(k)s.
It states that advisers “generally” will have to act in the best interest of their clients when providing investment guidance. Previously, advisors/brokers/whatever you want to call us/them were only required to offer “suitable” recommendations. That basically means that an advisor could sell high-fee products or charge high commissions as long as someone qualified for the product, even if it wasn’t in their best interest.
Most of you are probably saying, “Well, duh?” The fact that a service industry, such as giving financial advice, needs a rule to state this is more than a little ridiculous. But for those of us who run our business as “the good guys” in this game we know there are indeed “bad guys” out there that perhaps this new rule will run out of business.
So here’s what to look out for in the process of choosing an advisor. Consider it your own cheat sheet to either help find, or clarify that you’re already with, the right one.
- Trust and Honesty – Start with the simple question, “Do you trust them?” We believe that trust is earned, not given. And no healthy advisor/client relationship exists without trust. We try to start off on the right foot in any relationship by adhering to the CERTIFIED FINANCIAL PLANNING Code of Ethics which provides the framework for our advice and ensures that we are held to the highest fiduciary standards in the business.
- Communication – Do you hear from your advisor? Especially when things get tough in the market or in the economy – do you hear from them? Is there a service model they follow to keep you informed? If not, it’s more than likely you got sold something and they have moved on to the next. Perhaps not what you were looking for when you sought advice.
- Answers to “Tough Questions” – Don’t be bashful about asking important questions that might seem uncomfortable. How do they get paid? What training have they had? What type of clients do they work best with? Ask them to outline how they will get paid for their advice. Real advisors like these questions. Remember, they are going to know all about your money, so ask how they make theirs. It’s best to set clear expectations.
- Credentials and Comparisons – Look up their credentials online. There are a lot of different subject matter experts out there, so be looking for the ones that best suit your specific values, vision and wealth. And be sure to compare. It’s good practice to consider multiple different options and whittle down to finding your right fit.
There’s no specific manual to this process. And in my mind, this new fiduciary rule hasn’t really changed much. But it does bring to light that there are people out there that sell financial products, which is very different than selling financial advice.