Financial choices in your own best interest.
The most popular words in the world of personal finance the past few years are “fiduciary” and “transparency.” In short, when an advisor is a fiduciary, that advisor is required to act in the best interests of their clients. If an advisor is acting as a broker for securities or insurance, they must ensure the purchase is suitable for their clients. Transparency means costs, fees and commissions and other potential conflicts of interest are clearly and conspicuously identified to the client – these factors may impact and be a significant part of the buying decision.
Don’t let this shake you to a point of distrusting everyone you’ve dealt with before, but second-guess and even question actions of your financial professionals. Make your questions specific and not general.
For example, asking a broker if they’ve always acted in your best interests is going to get you nowhere. Who is going to incriminate themselves and tell you they acted in their or their firm’s best interests? Questions need to be much more specific.
Specifics should surround several major items. First is cost. Ask about the underlying costs and expenses of the particular investment or insurance you’ve bought. Ask for exact costs and data, and something in writing from the investment issuer to back it up. Ask specifically what commissions were paid to both the broker, and the firm they work for, in your particular case.
I recently met with someone who invested in a real estate partnership. This person came in boasting about the institutional quality real estate deal that they now own where the broker didn’t charge them anything. This person had no idea the broker pocketed a $7,500 commission for a $100,000 investment.
Also ask if there was anything similar your broker evaluated that may have had lower costs and could have been purchased. Furthermore, ask for the names of those investments and check them out yourself. You may learn the broker might not have looked at many alternatives or their firm doesn’t have many alternatives from which to choose.
Generally this line of questioning is appropriate for any financial professional with whom you’ve done business where you didn’t pay a fee directly to the advisor for the service.
In closing, I’d like to make two points. First, support the proposed fiduciary regulations headed to the president’s desk. Second is to find an advisor who is willing to act as a fiduciary to get a second opinion regarding what you’ve been sold.
John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.