Surgery, Fiduciaries and Business Cards
Reader Question: “How do I know if a financial adviser is recommending what is best for me? And, what is a fiduciary?”
Interestingly enough, picking an adviser is a lot like picking a doctor. I know because I had major surgery in 2005. After years of pain, my left arm suddenly began to lose strength. This wasn’t something that a chiropractor could adjust or that a therapist could massage away. My X-rays showed two crushed discs in my neck. The nerves running to my arm were also being pinched. With three children under five at the time and plenty of work to do for my clients, you can imagine the depth of my concern. My family doctor sent me to a surgeon he liked, but I also asked for my medical file to be sent to three additional doctors I wanted to interview. When I made my final selection, the doctor I chose was a Board Certified Neurosurgeon with three decades of experience. Despite his robust intellect, I always found him easy to talk to and I never felt rushed. I also found his staff to always be helpful. So, what does surgery have to do with getting good financial advice? It was the surgeon’s education, skills, ability to communicate and personal attention that made him my choice. And it was my deliberate selection process that helped me choose well. You can use this same thought process (and the same self-determining attitude) to find good financial advice.
It’s important to keep in mind that advisers decide for themselves how they will do business. Some choose to get financial credentials and take ongoing educational courses. Some don’t. How they choose to do business also determines whether they are a fiduciary or not. In the financial world, a “fiduciary” is a financial professional who is required to put his clients’ interests ahead of his own. Advisers are either fiduciaries or they aren’t, just like a woman can’t be a “little” pregnant. In plain English, being held to a “fiduciary standard” means that for as long as the relationship exists, the adviser’s recommendations should be suitable and the best choice for the client, based on the adviser’s understanding of the client’s individual, specific needs.
To find out if an adviser is a fiduciary, all you have to do is ask. Investment advisers, Certified Financial Planner™ practitioners and trustees are generally held to a fiduciary standard. If an adviser is not held to the fiduciary standard, then most financial regulations require that any recommendations be “suitable” for the customer at the time of sale. This suitability standard primarily applies to insurance agents and securities brokers. In this role, the adviser sells products that are considered suitable to the company’s customers. Financial regulators seem to think that the investing public doesn’t understand the difference between fiduciary and suitability standards. I tend to agree because most people I talk to don’t know the standards and the responsibilities of different types of advisers.
One place to start when evaluating an adviser is his business card. What’s on an adviser’s business card can give you some insight into how seriously he takes his work. You should expect to see his full name, name of his employer, business address, telephone number and website. Financial credentials should also be on the card. If an adviser is a registered representative of a broker-dealer or an investment adviser representative of a registered investment adviser firm, the adviser is generally required to disclose this relationship on a business card. This also tells you who is responsible for the adviser in case you need to report a problem later.
If an adviser doesn’t have a business card, then perhaps the Japanese have it right. The exchanging of business cards in Japan is very important. In fact, business actually cannot commence until cards have been formally and respectfully exchanged. A business person’s status and standing in Japan’s hierarchal culture is reflected with his card. In a very fundamental way, not having a business card means you don’t even exist. Back in America, it is unlikely that an adviser who gives you his contact information on a scrap of paper or napkin is equipped to help you achieve your financial goals. I certainly wouldn’t entrust him with my life savings, and neither should you.
My spinal surgery took over six hours because there was more damage than expected; I’m sure glad I did my homework and hired the best person I could find for the job. Make sure you do the same when it comes to planning your financial future. Getting sound financial advice in our increasingly complex world takes deliberate effort. Ask your friends and family about their experiences, do your own research, screen potential advisers and then hire the best one for the job.
David D. Holland, a CERTIFIED FINANCIAL PLANNER™ practitioner, hosts a weekday radio show at 9AM on AM1380 Ormond Beach, AM1230 New Smyrna Beach and AM1490 Deland. He has also authored two books in his Confessions of a Financial Planner series. Holland offers investment advice through Holland Advisory Services, Inc., a registered investment adviser in Ormond Beach. He can be contacted at (386) 671-7526. Email your financial questions to info@DavidHolland.com.