Nov 18 2014
Financial services are unlike most other consumer products or services. You never really know if you bought the right product or if you are getting the proper service. In addition, you may not even know how much you are paying for the product or service.
This frustrating consumer situation is the basis for arguments about the standards financial people abide by. The two standards are “fiduciary” and “suitability.”
Fiduciary—a person or company charged with the responsibility of managing assets for the benefit of a client. The fiduciary standard requires the adviser to put the client’s interests above their own. States have laws that mandate what fiduciaries can and cannot do with a client’s assets. Most laws declare that it is illegal for a fiduciary to invest or misappropriate assets for the fiduciary’s gain.
“Well, isn’t that the standard of most professionals?” No. This is…
Suitability—offering investments or money management that is considered appropriate for a client by making recommendations that are consistent with the interests of the customer. So the financial person must make suitable recommendations to their clients. This allows a professional’s or firm’s best interest to be the priority as long as the client gets something that is suitable for his/her needs.
The bottom line is a person under either standard could work in your best interest or burn you. A consumer should have the expectation that a fiduciary will best protect you but know your financial professional well either way. There are sales people and there are advisers. Know the difference.
As most things in life, it is buyer beware. It comes down to the person you are dealing with in the financial industry. No laws or government can protect consumers from someone looking to make a buck off you or cause you harm.
As a financial professional, there are many options available to me to accomplish a financial objective for you. How would you know whether I’m recommending “the best” solution for your objective? How do you define “the best” versus my version of best? Generally speaking, be wary of quick solutions, guarantees, high costs and commission based products.
Read our two-part article on shopping for an adviser:
- Shopping for a Financial Advisor? Some of the larger points.
- Shopping for a Financial Advisor? Some finer details.
Ask your financial professional and the firm their standard. Know the right questions to ask and don’t be shy about it. I wanted my clients to know the who, what, where, when and how. Accept ownership over your accounts.
Making smart financial decisions is not always as clear as we would like it to be. Whether you are buying a home, considering investments, starting college planning for your children, or other life decisions, the MOAA Finacial Planning Guide has the answers you need. FREE download or hard copy for LIFE and PREMIUM members of MOAA.