There is usually a question or two about whether or now you are a fiduciary? But this is getting some kind of electric traction as if all the sudden there is a lightning difference in the financial services industry between those who are and those who are not. So, Y E S, as a Certified Financial Planner®, I have made a commitment to always do what is in the clients’ best interest and our clients’ interests always come first.
But being a fiduciary does NOT mean a certain type of compensation only – which is what many, many in the industry are trying to equate it with. And being a fiduciary does not mean ‘fee only’ compensation as a flat fee percentage does not equate to conflict free compensation. One recent example was a fee only national advisor, who has built a national media campaign around their fee only compensation, who went on TV after an extremely rough market quarter and declared that the bull market would last for 2 to 3 more years. In reflecting on why such a national advisor would make such a brave prediction, given that there has never been a bull market last longer than 10 years in American history and we were over 9 years into the 2009 bull market when this advisor made this prediction, it became clear that the advisor was protecting his clients from jumping out of the market or moving to cash – a position that typically pays no fee to the advisor at all. In other words, even if an advisor is only paid a flat percentage fee based on the value of the portfolio, that does not mean the advisor will give conflict free advice. The client may have the need to avoid a large market correction based on where they are in their investment life cycle, but getting out of the market or moving to cash or cash equivalents means the advisor gets paid nothing and that is a move that we have seen advisors historically, consistently and quite vehenemently discourage their clients from making.
In America, we are all paid for the work we do and that does not create a conflict of interest in itself. Changing advice for compensation reasons is what creates a conflict and that possibility exists for the bad actors in the financial services industry on both the flat fee side and the upfront paid commission side. Do not be manipulated into believing that you must pay a never-ending percentage fee every year in order to have a conflict free advisor. Rather, look at the plan – does it accomplish your goals, does it cover all the bases, does it have contingency plans for the unexpected, does it meet your gut-check, those are the important questions that must be answered. Build a relationship with an advisor you trust and do not be manipulated by the industry’s attempt to push you in one direction or the other.