ELEVATE-ADAM KOÓS • October 11, 2022

While I travel to attend 2-3 large financial conferences every year, for the first time in many years, I participated in a local educational workshop for financial advisers, which was sponsored by a large, national financial company. This also made it the first time in many years that I sat in a room of financial professionals from all walks of life… tenured vets in the business, younger advisers just getting their start, commission-based, fee-based, but only a couple other Fiduciaries sat in the room with me.

As I walked to my car after the event concluded, I couldn’t help but think about all the misconceptions, myths, and misunderstandings that exist in the minds of investors about financial advisers. It also got me thinking about a few of my pet peeves that pertain specifically to retaining and/or hiring a new financial professional.

First off, Webster’s Dictionary defines a “Fiduciary” as:

“Of, relating to, or involving a confidence or trust,”

“One that holds a fiduciary relation or acts in a fiduciary capacity.”

Okay, that didn’t make things super clear, so let’s try Investopedia’s definition, which is a little easier to understand:

“A fiduciary holds a responsibility that is considered the highest standard of care under the law. A fiduciary relationship involves two parties: the fiduciary and the client (or group of clients), where the (fiduciary) has an obligation to put the client’s needs in front of his or her own. 

Just as some countries have laws requiring the captain to be the last person to leave a ship in distress, fiduciaries have to save your money before they save their own. If they don’t, they can face civil and even criminal penalties under the law.”

Ahhh… that’s better. Make sense now?

Since you now understand what a fiduciary is in a general sense, let’s get back to the problem at hand and how to arm yourself with knowledge. Here are three things you need to know about fiduciaries:

Not everyone is a Fiduciary:

Just because you work with a financial adviser doesn’t mean they are a Fiduciary. In fact, there are very few, full-fledged fiduciaries, relative to the seemingly endless number of financial advisers in the industry.

You could be working with a great person with a lot of expertise and time in the business. But there are commissions, hidden fees, penalties, and contests that financial professionals participate in (willingly or not) to “win” a trip if they sell a minimum amount of the firm’s latest, favorite product.

Point being, the financial adviser you’re working with can be the greatest, most kind-hearted and charismatic person you know… but that doesn’t change the fact that there are so many conflicts of interest that exist when working with a non-fiduciary.

A certification or designation doesn’t make someone a Fiduciary:

These days, there is so much alphabet soup in the financial industry, it’s difficult to know what these designations mean, and whether they provide you (yeah you, the client) with any value for working with your financial adviser.

I remember starting my career 18 years ago thinking, “I need some letters after my name so that I have some credibility.” After all, I was only 21 years of age and that was 50 lbs. ago, so I looked like I was 16, at best!

The firm I worked for was pushing the AAMS designation, which stands for Accredited Asset Management Specialist. Seemed fine to me – any letters would do, especially if it wasn’t a lot of work. But do you know what it takes to obtain this designation? A “self-study” course can easily be skimmed through over the course of a weekend, after which you take a relatively easy, online exam with any non-family member as a proctor. Hmm…. You can see where this is going.

I’ll elaborate in a future article on some of the better, most prestigious designations and certifications in the financial advisory industry. Don’t worry, I’ll be sure to share some details on some of the other, more obscure ones as well. The bottom line is, don’t mistake someone for a Fiduciary just because they have a few (or a lot of) letters after their name.

Most Fiduciaries aren’t “always” Fiduciaries:

The fiduciary law came into focus in politics five years ago, and bills started hitting the Oval Office desk shortly thereafter, with several amendments and proposals to change the fiduciary law. Ever since, financial firms around the country started making big changes to their policies.

If in the last few years, if your adviser called you with a request to sign new paperwork to “change the account type” they had set up for you, then you’ll know what I mean. The fact that these calls and the subsequent paperwork in your mailbox came, seemingly out-of-the-blue, would’ve been your first red flag.

But the really interesting thing about the recent changes to the Fiduciary law is that it allows those who were previously non-fiduciaries to “act in a fiduciary capacity” in some situations, but then act as non-fiduciaries in other situations.

To elaborate, there are times when your financial adviser may be acting in the capacity where conflicts of interest reside and they’re holding themselves to a “Suitability Standard,” which means that they must believe the investment or product being sold to you is “suitable” at the time of sale with no regard for the future.

If you no longer like or want the investment you were sold, if you paid a big commission, and maybe you have to lose a bunch of money to sell it, thanks to a hefty penalty to get out of the investment – as long as the adviser can prove the investment was suitable and you signed the paperwork, “it is what it is.”

Sure, you may decide to part ways with this professional and hire someone else, but that’s not going to change the circumstances you’re in, nor will it change the fact that the professional in question was not acting as a fiduciary.

So, my third and final point is a big one. If there are times in meetings with clients when a financial professional can act with conflicts of interest, selling investments that aren’t in their clients’ best interest, but then – just minutes later – turn around and put on their “fiduciary hat…” Tell me, how can this person call themselves a Fiduciary?

I’ll let you come to your own conclusion.

I’ve been running my firm as a true, authentic Fiduciary for our clients for so many years now, it’s almost as if I’ve been living in a bubble. I’d forgotten how national firms, mutual fund and annuity companies “wine and dine” financial advisers. I’d forgotten about the “stories” they tell about their products, the “sales ideas,” and closing remarks as the event winds down with the presenter saying something to the effect of, “We’re here to support you, so if there’s anything we can do to help, we have some great products that you should really take a look at,” …blah, blah, blah.

Keep in mind, when I attended the workshop I mentioned earlier, it was just one room. In the real world, the “room” is much, much bigger, and the number of non-fiduciaries are bountiful.

Know who you’re working with, ask good questions, and ensure you’re working with an authentic Fiduciary. If you’re not, get a 2nd opinion from someone who is. A great resource for a list of firms that fit this model can be found at www.NAPFA.org.

Till next time…

Adam