you trust the adviser whoís telling you what to do
with your money?
many should not. The sad story is that if you are like
most Americans, you are easy prey for the money advice
business thatís involved with over $14 trillion of
Americansí retirement savings.
people seek out professional advice about their money
because they donít have a clue about how to proceed.
They know they have to somehow stretch their hard-earned
savings into years of spending money once they quit
working. But investing properly is a mystery, the fine
print that goes with products like annuities is
overwhelming, and finding the right person to help can
be just as perplexing.
often, Americans end up in the arms of so-called
advisers who arenít really there to protect and help
them. They are salesmen or saleswomen, not true advisers
who put their client needs first. These brokers arenít
rewarded by their employers for steering you into
top-quality investments or insurance at the lowest
price. They are hired to sell, just like the guy on the
car lot. And that means many will sell whatís most
lucrative to them and the firms that keep them on the
job ó not necessarily whatís best for you.
so-called "advisers" may have titles like
"financial consultant" and wear nice suits
while smiling warmly. They may devote time to little
league, community organizations or religious
institutions. They may have clients who are rich or
famous, or your friends. But what they often wonít
tell you ó unless you probe for it ó is that they
arenít paid to give you the best advice. And amid the
naivete of some clients, their sales behavior can be
like taking candy from babies. Americans are wasting
about $17 billion a year on unnecessary fees in
connection with investment advice that isnít aimed at
their best interests, according to the government.
with the prospect that millions of Americans will run
out of money in retirement and become a burden on
government, the U.S. government took action last year to
try to take some confusion out of the advice business.
The Department of Labor is imposing whatís known as
the "fiduciary rule" to improve the chances
that when an adviser gives money advice itís actually
untainted advice ó best for you, and not a disguised
sales pitch. Numerous investment and insurance firms,
plus business organizations ranging from the U.S.
Chamber of Commerce to the Insured Retirement Institute
and the Securities Industry and Financial Markets
Association, sued to stop the new rule. Many had been
fighting attempts to impose a fiduciary rule for over a
fighting the fiduciary standard claim that tightening
rules around advice will lead firms to stop helping
clients; especially people with little money in
individual retirement accounts and workplace plans such
as 401(k)s. The stakes are huge for the industry: There
is about $25 trillion in U.S. retirement assets,
including about $14.4 trillion in IRAs and plans such as
401(k)s, that would be subject to the fiduciary
industryís fight continues, with U.S. Chamber
President and CEO Tom Donohue noting in a recent blog
post, "we are urging immediate action to undo the
Department of Laborís Fiduciary Rule." With the
Obama administration leaving office, and new Republican
leadership promising less government regulation, the
fight against the fiduciary rule goes into a new phase.
Fearing an overturn of the fiduciary standard, the
Consumer Federation of America in the last days of the
Obama administration circulated a report that takes aim
at investment business lobbying efforts.
Roper and Micah Hauptman of the federation examined the
websites of over a dozen brokerage firms and found that
they emphasize "advice" and help
"planning" for retirement to attract clients.
Yet, the report said the lobbyists for those same firms
have been fighting the fiduciary rule by claiming that
they donít promise advice and that clients know the
consultant sitting across the desk from them is only a
marketing is grossly deceptive and securities and
insurance regulators have an obligation to step in and
bring a halt to the misrepresentation," the report
it now stands, when April arrives the new fiduciary rule
is supposed to start being phased in with investment
professionals having to live under tougher controls if
they want to give advice on IRAs and 401(k)-type plans.
the fiduciary rule, brokers will have to make it clear
that they are salespeople so you understand the
arrangement the same way you do when you go to buy a
car. People who give advice will have to declare
themselves "fiduciaries" in black and white on
paper. It will be the law.
donít take comfort in these new protections yet.
First, know they arenít in place now. So if you want
to determine if you can trust an adviser now, you must
ask if he or she is a fiduciary and examine their two
government-required forms: ADV Forms I and II. Certain
credentials ó such as a certified financial planner or
registered investment adviser designation ó will help
you spot fiduciaries. But also check out the person on
BrokerCheck (www.brokercheck.finra.org) to see if your
adviser or the firm has been in trouble with regulators.
On the ADV form, also examine whether the person gets
commissions ó a business arrangement that could mean
the adviser collects a fee based on what he or she sells
see if your adviser has been picking solid or weak
mutual funds for you, type in the name of your fund at
www.finance.yahoo.com. Then go to
"performance" for that fund and scroll to
"trailing returns benchmark." See one year,
five year and 10-year performance. You want a fund that
consistently has had a return at least as strong as the
"category" return for more than a year. If the
return ó or money made in the fund ó consistently
lags the category of other funds, you have to wonder why
your adviser would have you paying good money to be in a
laggard. One year isnít the key. Looking at the trend
over five or 10 years gives you real insight.
your adviser is picking stocks for you, ask the adviser
to show you how your stock portfolio has performed
compared with a benchmark like the Standard & Poorís
500 index for large company stocks or the Russell 2000
index for smaller companies.