Many of my client’s came to us from a bad relationship with a financial advisor. Their big question they ask is how they could have avoided the bad situation in the first place. While anyone can do bad work, there is a simply way to avoid a bad experience.
Fiduciary: Ask For It By Name!
Would you like to know what the finance department chair at MIT Sloan School of Management learned? I do. Here is the link. Antoinette Schoar sent mystery shoppers to get advice from financial advisors. What she found was very scary! In the study conducted with Sendhil Mullainathan at Harvard University and Markus Noeth at Hamburg University, it found that there was a single factor that determined if the mystery shoppers were given good advice or expensive self-serving sales pitches.
The research suggests that advisors that had a fiduciary responsibility gave less biased advice than those that were stockbrokers, or registered reps. I’m not shocked. Is it shocking that advisors that are legally responsible to work in your best interests gave better advice than an advisor that only needs to make sure what they sell is “suitable?”
Government Is Here To Help
Wow, I said it. While it may shock the cynics, the new rules the DOL is enacting next April will limit the business structure that puts an advisors goals ahead of investors. Simply stated, all retirement accounts must be given advice based on the best interest of the client. And it’s causing a greedy industry to flip out.
Does this affect me or my clients? Nope. My business structure forces me to always work in the client’s best interest. I decided to do that years ago when I started the firm. You see, working with money is hard enough. Knowing that my firm can only work in your best interest is like not lying: you never have to remember the truth.
Still More To Be Done
While holding advisors to a higher standard is a good rule, there are still plenty of exceptions brokerage firms are going to exploit. Here is the rub. If people are use to getting bad advice and their concerns are downplayed by stockbrokers, it makes it more difficult to give good advice when others are less scrupulous.
Until the wave of baby boomer advisors retire, this industry will have the lingering problem of putting client interests last. The good news is that there are more fiduciary advisors than ever before. Are you with one?