The National Bureau of Economic Research sent trained auditors in to meet with financial advisors to gauge the quality of their recommendations. What did they discover? Surprise, surprise, advisors who do not work in a fiduciary capacity (like we do) “encourage returns-chasing behavior and push for actively managed funds that have higher fees, even if the client starts with a well-diversified, low-fee portfolio.”
In his Time.com article Your Financial Advisor Might Be a Lemon, journalist Christopher Matthews talks to Antoinette Schoar, one of the authors of this study. He says that she argues, “the financial advice industry needs to do a better job aligning the incentives of advisers with their clients. Whether through voluntary action or government regulation, she thinks that requiring advisers to have a fiduciary responsibility to their clients would fix many of these problems.”
A fiduciary means your advisor has a legal obligation to offer advice that is in your best interest. You would think all financial advisors have this obligation, but they don’t. At Sensible Money, we practice as fiduciaries. Working with a fiduciary saves you money.
Suppose we compared the business of delivering financial advice to that of shopping for anything else. Would you work with someone who lied to you and charged you more for lesser quality advice? That is what frequently happens in the financial services business. And consumers accept it. This has to change. It is costing you juice.
I have had potential clients walk in with well-built portfolios of low cost index funds, and I have told them their portfolios look good. I have a legal obligation to tell them this if it is true. However, I have seen many advisors who are not fiduciaries tell potential clients all kinds of B.S. to try to win their business. Frequently these advisors have been trained to sell, and they often either don’t know, or don’t give any thought to the fact that what they are saying is perhaps not correct. After all, how many consumers would really know the difference?
Ask your financial advisor if they work as a fiduciary on your behalf. And if they are willing to put that in writing. Most of them cannot do so. We can.