Q: Can you elaborate?

A: Sure. Suppose your physician recommended that you undergo a medical procedure or gave you a prescription. And further suppose that she neglected to tell you that she would receive additional compensation/commissions for doing so. How would you feel about that?  Which person’s best interests were being served?

Q: What does that example have to do with the investment recommendations I receive from my Financial Advisor?

A: Everything. You deserve to know what is going on behind the scenes. You deserve full disclosure of all fees, commissions and other compensation. All material facts should be disclosed and all conflicts of interest identified. Wall Street follows a very low standard known as “suitability” and has vigorously lobbied against the imposition of a Fiduciary Standard.

Q: Why?

A: Liability.

Q: For what?

A: Putting their own interest before yours. It is very easy for broker/advisors/firms to create appealing products you will want to buy; even when there are better options available of which you are unaware. Perhaps with lower fees, less leverage and  no conflicted advice. Wall Street has built its distribution system in order to maximize profits and wants you to give them your Trust.

Q: If I really trust and like my Financial Advisor isn’t that enough?

A: Yes if you would rather not deal with the uncomfortable issues impacting your wealth. No, if you want to properly protect yourself, your wealth and your family. What are the root drivers of the advice you are receiving? Don’t you need to be fully informed? View my Form ADV here.

Q: Can you give me an example that is more subtle?

A: Sure. Would you want your Doctor to tell you the truth about your health or tell you what you want to hear?  Wall Street is very adept of selling products which appeal to what consumers want (at the time) over guiding them toward solutions consistent with their established goals. Their latest “pitch”, i.e. tax free income, or safer than the market, or protection from the Federal deficit or inflation or the next hot stock or the high income with low risk, etc. always sound very attractive.

Q: Why am I feeling confused?

A: OK. Suppose you told your broker that you felt like the market was too expensive or too risky or like a casino. Whether or not that were truet, at a given point in time, is not relevant to the sales process.. The sales professional (financial advisor) simply nods in agreement and then suggests an Alternative Investment, i.e. oil futures or gold or Australian bonds, etc appealing to what you have just told her. Serendipity? I think not. t.

Q: Why am I feeling uncomfortable?  Is this a well-worn, often repeated pattern?

A: Mark Twain observed that “History may not repeat itself, but it sure rhymes.” The fact is that fiduciary responsibility does not mean guaranteed success but it sure eliminates many of the drags and headwinds to a successful investment outcome. .

Q: Why do Fiduciary Duties exist?

A: To mitigate information asymmetry, aka “Knowledge Gap” between expert professionals such as Physicians and Lawyers and consumer patients and clients.


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Photo by Bob Green