Broker Check

Local financial person who is not fiduciary, or a "Virtual Fiduciary" who is?

| April 30, 2017
Share |

If your local financial person is unable or unwilling to be fiduciary -- act in your best interests' -- as well as understand your data, documents, and values -- might a "Virtual Fiduciary" work for you?

As I have previously mentioned, different "flavors" of Financial Folks are regulated differently.  This factual situation is not ideal for the consumer.  Some professionals, legislators and regulators want change.  But change has not yet occurred.  As a result, some financial folks operate using the fiduciary standard, and some do not.

If you work with a "local" financial person, just ask her / him.  Ask for it in writing.  Most of us who follow the fiduciary standard are happy to confirm that with you.

Is a clear and consistent Financial Planning Process a possible signifier of following the fiduciary standard?

If you choose to click on the above link or below (it's the same link,) you can see the CFP® Board Financial Planning Brochure for the public. Page 7 of this brochure describes the 6 Step Financial Planning Process espoused by the CFP® Board:

  1. Agree on how to work together
  2. Gather information about your finances and set goals
  3. Analyze and strategize
  4. Develop recommendations
  5. Put plan into motion
  6. Monitor progress and stay on track

Will a CFP® Certificant follow the fiduciary standard?  Here is what the brochure says: "Most people think all financial planners are “certified,” but this isn’t true.  Anyone can use the title “financial planner.” Only those who have fulfilled the certification and renewal requirements of CFP® Board can display the CFP® certification trademarks which represent a high level of competency, ethics and professionalism. And because they are held to a fiduciary standard of care when providing financial planning services, a CFP® professional is required to act in your best interest."

"Marketing Myopia:" Client-oriented or Product & Service - oriented?

When cave-dwellers roamed the earth I studied for and ultimately received an MBA with a concentration in Finance. But we were also required to take basic courses in many business areas. "Marketing Myopia" was the title of a relatively famous business school "case" nominally about railroads but really about mismanagement.  As Theodore Levitt said in the Summary, 

" ... those behind it assumed they were in the railroad business rather than the transportation business. They were railroad oriented instead of transportation oriented, product oriented instead of customer oriented." 

Transportation then and now was and is regulated.  Still, many feel that railroads lost their pre-eminence in the United States largely due to mismanagement, rather than the innate superiority of other forms of transportation.  Railroad executives at the time, according to Levitt, thought of themselves as being in the railroad business rather than the transportation business.

If the only thing you carry is a hammer, so the old joke goes, then everything looks like a nail.  Although imperfect, I still like the medical analogy.  Some of us get diagnoses from one medical person and go to another medical specialist for a specific product or service.  Others use one medical provider for diagnosis and treatment.  As a medical patient or as a CFP® Professional, my opinion is the same ... for myself and others.  I want the diagnosis / analysis first ... then the treatment / prescription.

FINRA statistics say there are 634,800+ brokers in the U.S. CFP® Board Statistics say there are 76,717 CFP® Certificants in the U.S. As a CFP® Certificant myself, I ask an unanswerable question rhetorically:  Are CFP® Professionals the only fiduciaries?  Clearly not.  Are CFP® Professionals the only "Financial Folks" who have a consistent financial planning process?  Again, clearly not. I believe that the CFP® Board is doing work in the interest of the public.  I do not represent the board other than being an individual CFP® professional.  My professional opinion is that one standard -- the fiduciary standard -- should apply uniformly to all client-facing financial services folks.  Although that might happen in the future, we are not there yet. 

One has to wonder if there are "only" about 77,000 CERTFIED FINANCIAL PLANNER® Professionals but nearly 635,000 brokers, what exactly are those remaining brokers doing?  And that doesn't even count insurance and annuity agents who have no securities (investment) licenses at all! And yet still can legally discuss retirement, which I feel should be part of a financial planning process ... and regulated as such.

Marketing Identification - Process - Compensation - Transparency

Many different kinds of people and entities - even entire businesses -- want to help the public with retirement-oriented issues and problems.  I wish this weren't so confusing, but it is.  Ask specific questions of the people you deal with or are considering.  I believe you will frequently get a straight answer.  And ask them to put answers in writing.  It might be illuminating.  You might particularly ask for a percentage breakdown of compensation / revenue in different product and service areas. It takes a license to sell an annuity.  It takes a different license to get paid for financial planning and /or investment advice. If you have an investment portfolio and the person isn't at least asking you to consider the possibility of providing investment advice, they might not even be licensed to provide investment advice.

Some firms - some very large and respected firms that I admire - might only offer their own products and services.  I have advised many clients to use some of these firms' products and services.  But these days, the public can also go directly to some of these firms.  Going  through a licensed professional ... an "Investment Advisor Representative" ... independent of and separate from a large product provider ... should enable a client to receive the products and services of many firms.  Going directly to one (typically large) provider of "in-house" products and services might mean that only the firms' own products and services are available.  Some work like that ... some don't.  But if the firm only offers their own brand of products and services, can they be fiduciary?

Confused yet?

Which is more important to you: Geography or Fiduciary?

The "best of all possible worlds" might be a fully-licensed, experienced, fiduciary professional who knows and understands your values, facts and documents.  It might be more and more difficult to find that person in the future ... or even already.  And maybe your own situation became more complex and your existing person has less experience with your new challenges.  If you have a long-standing relationship with a local person you trust who is fiduciary, that might be "best" for you.  But what if you don't?  Or what if your "financial folk" you are working with is retiring?  Or wants to "hand you off" to another "financial folk?"  What then?

Maybe it would be in your best interests to find a fully-licensed, experienced, fiduciary-level professional and ask that person to take a look ... even a (non-local)  "Virtual Fiduciary."

Listen to what various providers say.  Read what they write.  Try Face Time or a video conference.  Some ... maybe all ... of that might be available at no charge for a preliminary discussion.

If so, what have you got to lose?

Related Links

Share |