The Lead Comment
“Paying twice” and the Fiduciary Standard: The first time I was asked the question about “paying twice,” I candidly double-clutched. After thinking about it further, I incorporated this critical information into my normal presentation to clients.
I recently sat down with a potential client who claimed she was “not paying anything” for her investments. I did a not particularly deep analysis of her situation. I discovered that she was paying, on average, approximately 1.25% per year. She was not paying any direct charge to her provider. However, she owned, in my professional opinion, relatively expensive investments into which this 1.25% per year expense was embedded. Although this expense was easy for me, as a financial professional, to quickly determine, she had not been told or otherwise been given a straightforward description of fees and expenses other than the required hundreds of pages in multiple prospectuses.
Not coincidentally, in my opinion, she was working with a “nationally recognized name brand” provider and all of her investments were sponsored by her provider.
My view of the Fiduciary Standard is among other things, that a client of even moderate size is very unlikely for me to provide them with 100% of their investments from just one investment provider. My opinion of the real world is such a concentration is rarely in the clients’ best interests.
However, it is important to be clear about “paying twice.” Working with an independent advisor means that – typically and certainly in my case – you’ll pay me a quarterly fee as a percentage of the investments under care. This fee will be disclosed in writing before you become a client.
It is highly likely that certain investments I might recommend will have an embedded expense to the client. I will clearly disclose that expense. But the client is still paying it. Hence, “paying twice.”
It is, again in my opinion, obviously important for an advisor and the client to keep a close watch on all fees and expenses.
It is not necessarily in the clients’ best interests to “pay once.” The total expense could, in theory, still be higher.
And in my opinion, if you are “paying once” then the investments you own are being selected / recommended by the sponsor of those investments. That structure in my view is not the Fiduciary Standard and is a conflict of interest between the client and the investment sponsor.
The How-To Articles
Questions to Ask Your Adviser about Fees Tuneup . . . . Wall St Journal
Telling the Truth on Fees, Warts and all . . . .New York Times
Buying a Piece of your Adviser . . . . Wall St Journal
The Finance – Economic – Political Articles
Budget Office Says Obama Plan Would Cut Deficit by $1 Trillion . . . . New York Times
Average Retirement Age Up to 61 in USA . . . . Big Picture
Faced with Overload, a Need to Find Focus . . . . . New York Times