Some Advisors are Trying to Mislead You: Three Ways to Stop Them

Some Advisors are Trying to Mislead You: Three Ways to Stop Them

My colleague Erin Hadary and I were recently in an office building in which we could overhear a “financial advisor” meeting with his client. Within a few minutes, it became clear to us that the advisor was putting the hard sell on his client to try to get her to purchase an annuity with a 5% “guarantee”. We were able to track down this advisor’s website, and we found the following description of the firm’s compensation (firm’s name redacted): Compensation to the advisor is in the front of most clients [sic] minds when hiring an advisor. [—] prides itself in being a predominantly fee based practice.  We believe this allows the client and the investment advisor representative to be on the “same team”.  The client never has to wonder if there is a conflict of interest because of commissions paid to the investment advisor representative because fees are disclosed prior to opening an account.  Our types of fees are hourly rates, flat fees and percent of assets under management. After reading this extremely misleading description, it’s no wonder the general public is often confused about how advisors get paid and where conflicts of interest truly lie. I agree that “Compensation to the advisor is in the front of most clients [sic] minds when hiring an advisor.” After this, however, the description of the firm’s compensation model completely falls apart. First, the firm describes itself as being predominantly fee-based. This in and of itself isn’t a problem, but the next line reads, “We believe this allows the client and the investment advisor representative to be on the ‘same team'”. A fee-based advisor does not...
Tony Robbins on Trump’s Abandonment of Retirement Investors

Tony Robbins on Trump’s Abandonment of Retirement Investors

While I disagree with much of Tony Robbins’ approach to investment management in his 600-page tome Money: Master the Game, he gets just about everything right in his recent Fortune article about the Fiduciary Rule. With the Dow reaching record highs, Tony notes that “President Donald Trump’s plan to review the Labor Department’s fiduciary rule may be good news for Wall Street, but not for hard-working Americans saving for retirement.” I’ve written at some length about the Fiduciary Rule here, and I recently helped contribute to a NY Times article about it here. The gist of the Fiduciary Rule is this: Legal fiduciaries are obligated to put the needs of those they serve ahead of their own, but the Department of Labor found that the financial services industry often doesn’t do this. As a result, they proposed the Fiduciary Rule—regulation designed to ensure that consumers aren’t fleeced by overpriced financial products and conflicts of interests with financial advisors. About this fiduciary standard, Tony Robbins comments, I’m a fan of the fiduciary standard. Doctors and lawyers are legally required to do what’s best for you—why not your financial advisor as well? While most people assume financial advisors are registered investment advisors (RIAs), who are legal fiduciaries, it turns out that less than 4% of them are. As if this weren’t confusing enough, there is another class of RIAs, so-called dual-registered RIAs, who are affiliated with a brokerage and sell financial products for a commission. If the Fiduciary Rule goes away, what should consumers do? In addition to asking questions about fees, as Ron Lieber rightly points out in the aforementioned NY Times piece, consumers...
The 21 Questions You’re Going to Need to Ask About Investment Fees

The 21 Questions You’re Going to Need to Ask About Investment Fees

Dunston Financial Group is excited to announce that we were recently featured in The New York Times. Working with Your Money columnist Ron Lieber, we helped contribute to his article “The 21 Questions You’re Going to Need to Ask About Investment Fees”.  In light of the new Administration’s desire to delay and potentially do away with the Department of Labor’s Fiduciary Rule, we had an opportunity to talk about the ways in which consumers would benefit from the Fiduciary Rule, and how consumers can protect themselves against excessive financial services fees. The fiduciary rule ultimately comes down to the fact that some people are making a lot of money at the expense of other people who have no idea how much their adviser is getting paid,” said Lynn M. Dunston, who runs a financial planning firm in Denver, where the only fees he earns come directly from clients. Also, be sure to check out our blog article that was featured in the article as it provides some helpful context behind some of the issues that were...
Filtering through the Many Different Types of Financial Advisers

Filtering through the Many Different Types of Financial Advisers

  NerdWallet.com personal finance columnist Liz Weston gets it right when she advises a reader on the different types of financial advisors out there. The question from the reader is, Dear Liz: I have met with a financial adviser, but he wants every investment to go through him. Although he is an adviser, he works for a company and wants me to buy their products. I’m a little resistant about this. What’s your advice? Liz rightly responds by explaining to her reader that, Anyone can call himself or herself a financial adviser or a financial planner. There are no education, experience or ethics requirements for using those titles. A more accurate job description for this guy might be “product salesman.” He may not charge you upfront, but he’ll make commissions from those products and will recommend them even if there are better, cheaper options available. If you want someone who puts your interests first, look for a fee-only adviser who’s willing to act as a fiduciary. “Fiduciary” means the adviser promises to act in your best interests. And don’t confuse “fee only” with “fee based.” Fee-only advisers are compensated only by their clients. Fee-based advisers may charge their clients while accepting commissions for the products they recommend. You can get referrals to fee-only advisers from the Garrett Planning Network at www.garrettplanningnetwork.com and the National Association for Personal Financial Advisors at www.napfa.org. If you want someone to give you comprehensive financial planning advice, make sure that he or she has the appropriate credential such as Certified Financial Planner (CFP) or Personal Financial Specialist (PFS) and that you verify the credential...
Sales Vs Advice: The $17 Billion Problem That Caused Me to Become a Fee-only Financial Planner

Sales Vs Advice: The $17 Billion Problem That Caused Me to Become a Fee-only Financial Planner

A Sales Culture When I first entered the financial planning industry in 2001, I was excited about the prospect of helping people with their finances. My goal was to become a CERTIFIED FINANCIAL PLANNER™ practitioner, and the six-step financial planning process as outlined by the CFP Board of Standards made practical sense to me: Find clients who could benefit from professional financial advice; guide them through a comprehensive financial planning process; then, make professional recommendations in an effort to help them achieve their financial objectives. Having been in the finance industry in various roles for many years prior to becoming a CERTIFIED FINANCIAL PLANNER™ practitioner, I had already witnessed people make major financial planning mistakes. When the dot-com bubble burst in 2000, I saw investors lose their entire retirement portfolios. I also saw many people lose their money in high-risk limited partnerships, private LLCs, and other speculative investments. I wanted to help clients make better investment decisions, and I was excited to enter a business that was supposed to be all about helping people. When I first started in the business, I found that I had indeed entered an industry that was largely centered on helping people. I had great mentors; I was surrounded by well-educated people, and many sincere people taught me the ropes. One thing about which I was surprised, however, was the extent to which I found the industry to be dominated by a culture of selling. I had never been a sales person before, and I didn’t want to become one. I entered the business not to make sales, but to give people sound financial advice. Nevertheless, what I found was an...
What Your Financial Advisor Might Not Want You to Know

What Your Financial Advisor Might Not Want You to Know

U.S. Secretary of Labor Thomas Perez and White House National Economic Council Director Jeff Zients recently wrote an insightful article for CNN about the “conflicted advice” that many people receive from their financial advisors. Advisors who provide such conflicted advice to their clients, they point out, cost Americans $17 billion a year. This is money that could be helping hard-working Americans achieve their financial and retirement goals, but instead it is paying for what are often excessive and unnecessary expenses. Conflicted advice takes place when a financial advisor recommends a product or service for a client that is better for the advisor than it is the client, and it almost always centers around the way in which an advisor is compensated. As an example, when confronted with the option of investing a client’s money in an annuity product with expensive fees, or a no-load investment with zero sales fees and minimal ongoing expenses, an advisor might be tempted to place a client’s funds in an annuity on account of the fact that the annuity provider will pay the advisor a generous front-end sales commission. What is more, as Perez and Zients correctly point out, advisors are often awarded “perks and bonuses—a trip to Hawaii for example—for meeting sales goals for particular products.” Perez and Zients are also right to note that “This is not a case of bad people doing bad things”, but rather, “It is about good people working in a structurally flawed system.” The system is flawed because, from a legislative perspective, not all advisors are held to the same standard of fiduciary responsibility. As a fiduciary, an advisor is...