Occasionally, I run across a real-life scenario that demonstrates a topic that I struggle to describe by just its definition. That happened to me recently in dealing with a new client. We explain to our clients that we don’t accept commissions and will act as their fiduciary in all matters. I think most clients assume that all financial advisors function as fiduciaries, but that’s not the case.
In this particular case, an advisor was managing roughly $1 million for a client. The first thing I noticed was they had neglected the account for years. This neglect had allowed a client’s risk to exceed their tolerance and for unrealized gains to accumulate to the point the client was stuck in the investment to avoid significant capital gains.
Unfortunately, my first impression did not reveal all that was going on in the account. Upon review, the client was paying roughly 2% in an asset under management fee, but, while this was a high fee, it apparently wasn’t enough for the advisor. Without explaining the plan to the client, the advisor took a portion of the portfolio and invested it in a publicly traded limited partnership. This transaction earned the advisor a large commission on the purchase and put the client in an investment that didn’t fit them, and now the client can’t get out of the investment due to its illiquidity. Additionally, this investment is going through lawsuits related to brokers even approving the investment to be sold to clients due to its suitability, or lack thereof, as an investment.
Why would an advisor do this? The simple answer is to benefit from the large commission.
Therefore, when looking for professional assistance with your investments, looking for a fiduciary that will operate in your best interest should be a primary consideration.
What is a Fiduciary?
As a fiduciary, we are legally and ethically required to act in your best interest. When working with us as a fiduciary, you can expect advice focused on your needs, not influenced by commissions or sales goals.
How are our services different:
1. Personalized Financial Projections
As a fiduciary, we don’t offer generic advice. We take the time to understand your financial situation, goals, and risk tolerance and then create a tailored financial projection.
2. Investment Strategy Selection
We assess various investment options and choose the ones best suited to your financial goals. We consider factors like market conditions and your risk level when advising on how to invest in stocks, bonds, ETFs, and more.
3. Ongoing Portfolio Management
After setting up your investment strategy, we continuously monitor your portfolio. We adjust as needed, especially after major life events like marriage or retirement or as you age.
4. Risk Management
We ensure that your investments match your risk tolerance and help diversify your portfolio to reduce risk and excessive losses.
5. Tax Efficiency
We aim to grow your wealth while minimizing taxes. We use strategies like tax-loss harvesting and recommend tax-deferred accounts (like ROTH or Traditional IRAs and your company 401(k)) to manage the taxability of distributions in retirement.
6. Transparent Fees
Our fees are disclosed in your statement, which are based on a percentage of assets under management. Unlike non-fiduciaries who may earn commissions, fiduciaries offer full transparency to avoid conflicts of interest.
In the end, with so many investment options and advice out there, working with a fiduciary can give you peace of mind. We are legally committed to your success, offer unbiased advice, and make every effort to ensure your investments are handled with care. If this is something you need, we would appreciate the opportunity to talk with you.
