Is your financial advisor working in your best interests? Or his own? It's a very big deal and you must find out. Fortunately, it's easy to do. Just ask!
Financial advisors in the US come in all shapes and sizes but they generally can be put in one of three categories .. a broker (think any kind of bank or credit union or Merrill Lynch, Morgan Stanley etc.), an insurance agent (think Northwestern Mutual, Guardian, Axa, Prudential etc.) or a Registered Investment Advisor (think Anglia Advisors and others).
THE FIDUCIARY STANDARD ..
.. requires that advisors always put their clients' best interests ahead of their own and those of their employers, disclosing any and all conflicts of interest and resolving any conflicts that may arise to the benefit of the clients. Solutions can be only be recommended if they are, in the opinion of the advisor, the best available in terms of the clients’ interests, regardless of any advantage that may be accrued to advisors by recommending them. Advisors are not being paid commissions, trail fees, kickbacks by any third party in return for promoting, recommending or selling any investments, products or policies.
It imposes a duty of loyalty and care on advisors, ensuring they do their best to give the most thorough and accurate analysis possible. Advisors must guarantee that clients understand the entire cost implications of the engagement.
This standard applies to firms who are Registered Investment Advisors, like Anglia Advisors.
The client is at the heart of the fiduciary relationship.
Evidence of being subject to the fiduciary standard is provided by the Form ADV Part 2, which must legally be provided to potential and existing clients. No Form ADV Part 2, no fiduciary obligation!
THE SUITABILITY STANDARD...
.. offers no such comfort. Instead of placing the clients’ interests above their own, the suitability standard only requires these so-called “advisors” to "reasonably believe" that any recommendations made will not be entirely unsuitable for their clients. Another key distinction is that the “advisors” first duty under the suitability standard is not to their clients, but to their employers. As long as it falls within the broad suitability requirement, recommending the least suitable of what can be a multitude of "not un-suitable" options still satisfies the suitability standard.
The suitability standard also invites severe conflicts of interest in terms of compensation, which is based on commission paid on sales volume of a specific set of products under a quota that needs to be met. This incentivizes “advisors” to promote and sell products that best benefit themselves in terms of commission, with no concern at all for what is beneficial for their clients.
In other words, advisors under the suitability standard are being paid commissions, trail fees, kickbacks by third parties in return for promoting, recommending or selling you particular investments, products or policies that are likely not in your best interests, but instead do likely provide the maximum amount of commission revenue for the advisor.
This standard applies to all professionals working for any bank, credit union, broker (like Merrill Lynch, Morgan Stanley etc.) and any insurance company.
The product is at the heart of the suitability relationship.
Anglia Advisors operates under the Fiduciary Standard at all times. You can see this commitment in writing here.
So, whether you engage with Anglia Advisors or not, please do NOT hire a financial advisor who will not commit in writing to act as a fiduciary to you at all times for all of their services.
Beware of titles. There is no regulation which covers what anyone calls themselves. Being called a financial planner, financial advisor, financial coach, money coach, investment advisor, wealth manager or any other seductive name is meaningless. Anyone can give themselves these titles and requires no qualifications to do so. They are breaking the law if they are unregistered and offer financial advice for compensation, but that doesn’t stop many unqualified charlatans from doing so.
Designations such as CERTIFIED FINANCIAL PLANNER™ (CFP®) professional, however, are at least indicative of a very significant course of study, the passing of a highly challenging exam and adequate, appropriate experience in financial planning.
The CFP® designation also generally comes with a requirement for the advisor to act as a fiduciary when conducting financial planning and this works for sure if the CFP® professional works for a Registered Investment Advisor. However, as this article points out, this can begin to become a gray area when they work for a bank, broker, insurance company etc. and there are still some questions you need to ask about compensation methods and employer obligations, even if your advisor holds a CFP® designation (see below for exactly what to ask them).
As a Registered Investment Advisor (RIA), a fiduciary responsibility is mandated. It is exclusively a CFP® professional at this type of firm that you should seek out.
WANT TO KNOW FOR SURE? IT'S SIMPLE. JUST ASK YOUR ADVISOR THIS ONE QUESTION:
Download and print this form.
Bring a copy with you to every initial consultation or discovery meeting that you have with any kind of financial advisor (including any insurance company offering "financial planning", as they like to call insurance sales).
Right away ask, “Are you a fiduciary?” If they give you any answer other than an immediate “Yes”, then politely end the consultation and leave. It is a binary yes or no question that you have asked, you can’t be “a bit fiduciary”! You either are a fiduciary or you are not and the advisor knows very well what the answer is. So any response that is hedged, incomplete or in any way vague can be taken to mean that no, that person and firm is not fiduciary and therefore no longer worthy of your consideration as the responsible and un-conflicted steward of any part of your finances.
If they say yes, then ..
Ask them to sign the downloaded form right then and there in front of you on behalf of both themselves and their firm (FYI: we sign this form for all our clients, see above) and provide you with a copy on the spot.
If the advisor is unwilling or unable to quickly sign this form or says he needs to "discuss it with his manager", then the advisor and the firm are clearly not a fiduciary and not required to act in your best interests at all times - you should quickly walk away and only consider working with an advisor who is willing to sign it right away with no reservations.
Ask them for a copy of their Form ADV Part 2. This is the form that confirms the fiduciary responsibility of the advisor. If they are a fiduciary they will be able to provide you with a copy right then and there or email you a copy while you wait.
Any failure or even any hesitation to be able to produce a Form ADV Part 2 means that the advisor and the advisor’s firm are covered by the fiduciary standard fiduciary and are to be avoided. Again, simply walk away.
If you already work with a financial professional, ask him/her to sign the printed fiduciary oath and provide you with their Form ADV Part 2 if they have not already done so. If they fail to provide the Form ADV Part 2 or are unwilling or unable to sign the fiduciary oath, then it's our view that it is definitely in your interests to immediately start looking for a new advisor.