Your phone rings and your broker is on the other line.  They talk about recent changes in the market (it’s gone up or it’s gone down) and the need for you to sell one of your current investments and buy a new investment product that will solve all of your problems.  After five minutes of describing arcane features and benefits, they want to know how much you want to invest.

With the thousands of financial products and investments, you wonder – why is this one different? How will this investment be different than the one you are selling, because the story being told sounds all too familiar?  Will you love this investment five years from now?  Is this the type of investment Uncle Larry told you to avoid? You think your broker is a nice person, but you have a level of skepticism and distrust every time you speak.  Are their recommendations in your best interest, or does your broker have something to gain from recommending this new investment?

What is a Fiduciary?

Sadly, the number one obligation of the vast majority of financial advisers is to their employer and NOT to their clients.  These advisers must adhere to a Suitability Standard, which means that their recommendations must be suitable in the eyes of a third party. To say it another way:  as long as their recommendations can’t get them sued, they are considered to be OK.  This level of advice is considered acceptable to their employers and to financial regulators, which is both shocking and unacceptable.

A select few advisers adhere to a Fiduciary Standard, which means that their recommendations and advice must the absolute best solution for your situation.  When a fiduciary adviser makes a recommendation, they must be prepared to defend it.  Imagine an adviser presenting a recommendation to a jury of peers, and needing all 12 jurors to agree that this recommendation is the absolute best.  This is what it means to be a fiduciary and to receive fiduciary level advice.

New Law:  For decades the financial industry has not operated at this level of advice.  After countless scandals, Congress finally began to address the issue through legislation.  In the Dodd Frank Bill passed in 2010, the Fiduciary Rule was born (although not implemented). The interpretation and implementation of this rule was open-ended and left in the hands of the Securities and Exchange Commission (SEC) to figure out. A key dilemma was forcing advisers to provide the absolute best advice to the client, but yet allowing them to satisfy their primary obligations to their employer. Imagine an adviser who works for an insurance company or brokerage firm and is required to sell only that company’s products. In a strictly worded Fiduciary Rule, if that company’s products weren’t the absolute best for their client, they would be prohibited from selling anything.

After much review and lobbying, a watered down version of the rule has been agreed upon for those in the brokerage and insurance industry who are still beholden to their employer and who are limited in what they are able to sell.  The end result is a disclosure statement that every client must sign which states, “we are trying to put your interests first, but we have to tell you that won’t always be the case.”  The net benefit to public?  We can’t see any.

Shakespeare as a Fiduciary:

Shakespeare has always been a Fiduciary Adviser.  As an independent adviser, our only obligation is to our clients and to their best interests.  We don’t sell financial products. Our level of compensation isn’t impacted by any financial products we recommend for clients.  We work on a Fee Only basis, avoiding any and all commissions.  Our fees are disclosed in advance of the relationship.  As a result, we are able to establish a higher level of trust with clients because they know we are always putting their interests first.  With this higher trust comes deeper relationships.  From deeper relationships we’re able to identify clients’ most important goals and focus our attention on accomplishing these goals first.

Is your Adviser a Fiduciary? 

So how do you determine if an adviser is a fiduciary or not?  Review an adviser’s website and business card, and be aware of disclaimers such as:

• Securities offered by XYZ broker dealer
• FDIC and SIPC Insurance

This language is required for non-fiduciary advisers who are able to sell commission-based products. Commission-based products incentivize the adviser to do things that aren’t in your best interest, which prompted the creation of the Fiduciary Rule in the first place.  Some advisers take it a step further, still selling insurance products that don’t require a broker dealer (and any of the above disclaimers). If your adviser is trying to sell you insurance, they aren’t a fiduciary.  A fiduciary adviser will review your insurance needs, and will refer you to a competent insurance professional who can implement the right insurance solution for your situation.

At the heart of this discussion is whether you have a relationship with an adviser you trust.  If not, it’s likely because you’ve never worked with an adviser who is truly a fiduciary.  A fiduciary adviser will have a broader time horizon than other advisers, be able to address a wider array of financial issues than investments or insurance, and will spend extensive time getting to know your goals.  Most importantly, a fiduciary adviser will always put your interests first!

It’s hard to identify the differences between the various financial advisers in the marketplace. To see what it’s like to work with an adviser at this higher fiduciary level, give us a call for an introductory meeting.