I’m going to be straight with you here — most people selling investment products today are not acting in your best interests.
Why is that?
Because they never had to, and because they’ve been trained by some of the best to sell what was in the best interests of the company they were working for, not the consumer.
I’m not placing blame here on most professionals. Some should know better and act better, but most do not know better. (OK, I’m trying to give the benefit of the doubt here but I have seen an awful lot of junk sold to people over the years so maybe they all know better and sell this stuff anyway.)
But truth be told, a lot of the products being sold by banks, brokerage firms and insurance companies are high cost products that they make sound like the best thing since sliced bread. Over time these products will make the companies a lot of money, but you, not so much. These high cost products are not in your best interest.
But the good news is that the landscape is changing. Recently the Department of Labor passed rules that say that anyone giving advice on retirement, pension, and similar type plans must be a Fiduciary.
What is a Fiduciary? Simply stated, a Fiduciary is someone who is legally bound to put a client’s interests before their own.
Most of the financial services industry is not required to adhere to these high standards, which, in my opinion, is ludicrous. Why shouldn’t anyone giving financial advice be held to this standard? I’ll tell you why — lobbying power. Until the laws are changed to require all financial professionals to be Fiduciaries, then you need to be cautious.
If you are hiring or working with a financial professional, ask them to put in writing that they are a Fiduciary when working with you, and if they won’t do it, fire them and find an advisor who is a Fiduciary.
Just imagine that a bank or brokerage or insurance salesperson recommends a product to you that is not in your best interests, yet you have no legal recourse? It makes no sense.
Now I’m not a big proponent of lawsuits, but when you’ve been taken advantage of without your knowing and sold an inappropriate investment product you should have some way of fighting back.
This is not to say that all financial professionals are unscrupulous crooks. Most are not, but most are also not Fiduciaries so how do you know who the good guys (and gals) are? You have to ask. You have to get proof in writing that they are acting as a Fiduciary so you have something to fall back on should they be lying to you.
Registered Investment Advisors, Trustees, and some Pension Consultants have always been Fiduciaries. But bank employees, commissioned stockbrokers and insurance salespeople have previously never been held to this high standard, and aren’t now unless they are advising on pension or retirement assets, or in the case of a stockbroker, working on a fee-only basis (not on commission) through the Registered Investment Advisory part of the brokerage firm. (General rule of thumb: anytime someone is selling you an investment product and getting paid a commission for the sale, they are not acting as a Fiduciary.)
So be careful. Ask questions. And if you’re not getting good answers, go somewhere else.
You work too hard for your money to have someone who is not looking out for your best interests advising you on it.
Final note: Bernie Madoff was held to the high standard of being a Fiduciary when he stole all his client’s money. Being a Fiduciary didn’t prevent him from stealing, so even Fiduciaries can be bad guys. So if it seems too good to be true, if your portfolio never loses any money, if you get a knot in your stomach when you are trying to get answers but aren’t getting any, or any that make sense, it’s time to take your money and run. From all I’ve read, almost everyone who invested in Bernie’s fund said they had, at one time or another, felt like something was too good to be true, and it was.