IS YOUR FINANCIAL ADVISOR A FIDUCIARY?

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Myron Shelton
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1 IS YOUR FINANCIAL ADVISOR A FIDUCIARY? by Keith Springer Having a fiduciary duty requires an investment advisor, by law, to act in the best interest of their clients, always putting clients interests ahead of their own. In this brief special report you ll learn more about what a fiduciary is, why it s important, and how to know if your advisor is one.

2 IF YOU HAVE A FEE BASED ACCOUNT AT MERRILL LYNCH, WELLS FARGO, FIDELITY, CHARLES SCHWAB, MORGAN STANLEY, TD AMERITRADE, EDWARD JONES OR ANY OTHER BROKERAGE FIRM LARGE OR SMALL YOUR ADVISOR IS PROBABLY NOT A FIDUCIARY! Are you a Fiduciary? is probably the mostasked question I get these days. I don t mind because my answer is easy: Yes, absolutely! This question doesn t surprise me all that much because every investor should know whether their financial guy is a fiduciary or not. The question has been brought to the forefront as a result of the new Department of Labor (DOL) ruling that states everyone who works with retirement accounts must be a fiduciary. I will admit that I was shocked to learn that a large number of so-called financial advisors are not fiduciaries. I have been in this business for over 30 years and I just assumed all were. Surprise, surprise, surprise! So, if you are an investor be sure to ask if your broker, financial advisor or qualified retirement advisor is a Fiduciary or a Stockbroker. What is a fiduciary and why is that important? Having a fiduciary duty requires an investment advisor, by law, to act in the best interest of their clients, always putting clients interests ahead of their own. Under the fiduciary duty, an investment advisor must provide advice and investment recommendations that he/she views as being the best for the client. It seems to me that this should have always been the standard of care. I couldn t imagine sitting across from a client and saying No, I am not required to put your interests first. Unfortunately, that s exactly what many advisors, particularly those who work for a bank or brokerage firm or only hold an insurance license, have to say when asked. 01

3 What is the difference between a fiduciary and a stockbroker and why should I be concerned? A stockbroker is defined as any person engaged in the business of effecting transactions, whether they be buying, selling, or trading for the account of others. Traditional stock brokers have many different titles these days and some can be a little confusing or misleading such as: investment consultant, financial advisor, financial consultant, registered rep or the now popular wealth manager or wealth advisor. What this really means in plain English is that in the eyes of the Investment Advisors Act of 1940, brokers are not considered to be fiduciaries because the services they provide are simply incidental to the sale of the products they sell. Therefore, they fall under what s called the suitability doctrine, which simply is a lower standard of care that legally allows them to not be obligated to put their client s interests first....any PROFESSIONAL FINANCIAL ADVISOR THAT IS NOT A FIDUCIARY IS ALLOWED TO SELL YOU THE PROPRIETARY PRODUCT OR INVESTMENT THAT PAYS THEM THE HIGHEST COMMISSION... This means any professional financial advisor that is not a fiduciary is allowed to sell you the proprietary product or investment that pays them the highest commission, provided it is deemed suitable. I have seen this many times with the so called money management programs offered by banks and brokerage firms Merrill Lynch, Wells Fargo, Fidelity, Charles Schwab, Morgan Stanley, TD Ameritrade and Edward Jones just to name a few. Regardless of their title, stockbrokers generally do not have a fiduciary duty to the client. Brokers can skirt around the higher legal standard of the fiduciary act due to an exemption they have been allowed to get from the definition of Investment Advisor (fiduciary) under section 202 of the Investment Advisors Act of 1940 which reads: Any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor. What can be even more confusing is that dual Registration is allowed. It is not uncommon today for financial advisors to serve as both investment advisors and brokers. According to a FINRA study, 88% of investment advisor representatives are also registered as brokers. Although dual registration is legal, a clear conflict of interest could exist. Advisors at brokerage firms often sell clients their internal money management programs or fee-based accounts, which are often no more than glorified mutual funds where you get to see the individual stocks. 02

In these cases, brokers present themselves as registered investment advisors, only to sell this so-called fee based account or asset management program, but provide little of the necessary planning

4 In these cases, brokers present themselves as registered investment advisors, only to sell this so-called fee based account or asset management program, but provide little of the necessary planning clients need, which comes standard when working with a qualified retirement advisor. Another tactic is for a brokerage firm advisor to sell you a fee-based account where they act as an investment advisor, while also opening a separate account where they sell you products such as REITs, bonds, or LP s where they receive a commission which you will probably never see. Investors get the short end of the stick here because dual advisors are only held to the lower legal standard. Insurance Licensing is also a common misnomer. With this simple license, someone can call themselves a financial planner. Of course this fancy title does not make them a fiduciary. 03

5 How can I tell if my advisor is a fiduciary or a stockbroker? Ask your current or prospective advisor if they are fee-based or fee-only. Advisors who are fee-only will be fiduciaries, as they cannot collect commissions or mutual fund trails. Their only source of revenue is the fee they charge for planning, advice, investment management, and asset protection. Ask what licenses the advisor has. If they have a series 7 license it means the advisor is registered as a stockbroker. If they have a series 65 or 66, they are registered as an investment advisor. If they have both the series 7 and 65/66, they have dual registration, thus creating a potential conflict of interest as I previously discussed. I gave up my series 7 license in 1998 in order to become a Registered Investment Advisor and thus a fiduciary. If you are a client of a Wall Street Bank and/or Brokerage firm, you probably became a client because you were seeking advice. However, you will very likely be exposed to significant conflicts of interest. These firms are in the business of selling products with their loyalty given to their shareholders. Their focus is on executing the transaction even if it s a feebased managed account and not the advice. Brokers on the other hand are primarily commission-focused. Legally, they cannot hold themselves out as fee-only. Fee-based can get a little misleading with these people as they can be dual registered and offer advisory accounts as well as brokerage accounts; while they may put on the advisory hat one day, the next day they might put on the brokerage or insurance agent hat to sell some limited partnerships or annuities. To ensure that your interests are always put first, work with a fee-only advisor who is required to function as a fiduciary for their clients. After all, you re looking for investment and retirement planning advice, not to be sold a product! For a free portfolio review or if you are interested in a FREE customized Retirement Income and Tax Strategy Analysis, simply click on this link or give us a call for a no obligation consultation today. As always, please feel free to contact me. Cheers Keith 04

ABOUT THE AUTHOR CHECK OUT KEITH SPRINGER S NEW BOOK!

Staying Afloat and Retiring Comfortably and Facing Goliath: How to Triumph in the

an SEC Registered Investment Advisory Firm specializing in investment and

Keith has been providing professional wealth management advice for over 30 years.

6 ABOUT THE AUTHOR CHECK OUT KEITH SPRINGER S NEW BOOK! Keith Springer is the author of Surfing the Retirement Tsunami Your Guide to Staying Afloat and Retiring Comfortably and Facing Goliath: How to Triumph in the Dangerous Market Ahead He is also the host of Smart Money with Keith Springer on NewsRadio 1530 KFBK. Keith can be seen on CNBC, FOX Business, the Wall Street Journal, Fortune, CNN Money, and other news outlets. He s the President and Founder of Springer Financial Advisors in Sacramento, CA, an SEC Registered Investment Advisory Firm specializing in investment and retirement planning. Keith has been providing professional wealth management advice for over 30 years. All content is original material, solely owned and paid for by Springer Financial Advisors. Keith can be reached at (916) or Keith@KeithSpringer.com. Learn more at keithspringer.com 1 PM 6 AM SIGN UP FOR THE SMART MONEY NEWSLETTER TODAY AT KEITHSPRINGER.COM 05

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7 FREE CUSTOMIZED RETIREMENT INCOME AND TAX STRATEGY ANALYSIS A $2,500 VALUE DISCOVER HOW TO: 1 2 MAXIMIZE YOUR INCOME - WHILE MINIMIZING RISK. HOW TO PAY LESS TAXES IN RETIREMENT. 3 PROTECT YOURSELF FROM INFLATION, SKYROCKETING MEDICAL EXPENSES AND RISING TAXES. RETURN COUPON FOR YOUR FREE ANALYSIS I AM INTERESTED IN RECEIVING A FREE PERSONALIZED RETIREMENT INCOME AND STRATEGY ANALYSIS SEND COUPON TO: NAME: PHONE: Info@KeithSpringer.com Fax: Mail: Springer Financial Advisors, 4480 Duckhorn Drive, Sacramento, CA 95834

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