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.
Evidence of being subject to the fiduciary standard is provided by the Form ADV, which must be provided to potential and existing clients.
No Form ADV, no fiduciary obligation!
The client is at the heart of the fiduciary relationship.
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 of what is most beneficial for their clients. These so-called “advisors” are not even required to disclose any of these conflicts of interest to their clients who are unlikely to ever know, unless they specifically ask. Scandalously, the suitability standard does not even require them to make any attempt whatsoever to try to minimize these conflicts.
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, but that doesn’t stop many unqualified charlatans from doing so.
Designations such as CFP®, 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 it with you to every initial consultation that you have with any kind of financial advisor (including any insurance company offering "financial planning", as they like to call it - it's not, it's just a means to get you to buy more insurance).
Right away, ask them all for their Form ADV and then ask them to sign the downloaded form right then and there 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 sign this form which simply commits him/her to putting your interests ahead of their own, or says he needs to "discuss it with his manager", then it is our strong belief that you are putting yourself at risk by working with him/her and you should quickly walk away and only consider working with an advisor who is willing to sign it right away with no reservations.
If you already work with a financial professional, ask him/her these questions as well and also ask them to sign the fiduciary form. If they fail to answer the questions to your satisfaction or are unwilling or unable to sign the form, then it's our view that it is definitely in your interests to immediately start looking for a new advisor.