Trust vs. Sales in Financial Planning
In Financial Planning, Trust is the Key
Written By Bryan Kupchik, supported by Capstone Wealth Management Group
Financial planning is a process that formulates, implements, and monitors multifunctional decisions to achieve financial, investment, and retirement goals. A well-drafted financial plan involves the mitigation of financial risks through a cost-benefit analysis and a focus on strengths, opportunities, weaknesses and threats within one’s plan.
In the investment industry, which I’ve worked in for 3 decades, business owners and corporate boards who oversee retirement plans, are often targets of sales pitches from “well-reputed” companies who sell products by overstating investment complexities to inflate their value all while operating under a pretense of “trust me, leave it to pros.”
Many of those in the industry (not all) work to promote themselves as being authentic and unbiased even when their true intent is profit. Now, being profitable in the investment industry doesn’t automatically come with an exclusion of being ethical, but let’s face it, only a small percentage of those who get barraged by sales pitches have the ability to comprehend the “language” of the investment world –leaving them vulnerable to unknown risks, potential unnecessary costs, or worse, breaches of fiduciary obligations.
So, how do you recapture an effective decision-making process, cut through the industry noise, and find the right fit for you and/or your business?
Seek Independence: When selecting services, look for those who are business owners themselves and operate independently.
Work with a Registered Investment Advisor (“RIA”): There are two different standards of care in the investment industry – one is called “suitability” and the other, “fiduciary”. An RIA firm is obligated to the fiduciary standard which means, under federal law, they must provide for the best interests of clients ahead of all else and avoid conflicts. In accordance with fiduciary standards, RIAs, while recognizing that definitions of success are characterized and expressed in different ways, know that the benefits of financial planning lead directly to the achievement of future goals.
Under the suitability standard, by contrast, “brokers” must act in fair-dealing and know enough about the products they sell to form a basis for a recommendation. A broker is not required by law to recommend the best products in the marketplace so long as the product meets suitability criteria.
Brokers also prioritize a duty of loyalty to their employer as a representative of that firm which results in the role of “divided loyalties” of a salesperson. When divided loyalties come into play, laws and regulations attempt to strike a balance that is fair for the customer while allowing the firm and the agent to profit from transactions which, often times, come with additional costs.
Conversely, the fiduciary standard is principles based, which means that a fiduciary’s actions are expected to be consistent with ethical standards that ensure the client’s best interests are being served and that costs are fair and reasonable.
Examine Agreements: Carefully evaluate service agreements and if a service provider makes a claim that they are fiduciaries, request it in writing. When engaging any investment professional, be sure that you are provided with documentation that fully discloses all compensation arrangements and affiliations associated with the services being provided.
Get an Assessment: Assessments are probably the most effective method of evaluating the quality of services being provided and should confirm that all terms and conditions of the engagement are adhering to fiduciary requirements and your needs directly. Assessments should be independent and systematic.
Fee Benchmarking: Fees charged in the absence of value are unnecessary and should be avoided. When addressing fees, it’s important to recognize what services are required versus what is being provided and to determine that costs are reasonable.
What’s the best way to find out how much you’re paying? ASK your current provider! And be sure to inquire about ALL fees that may apply including hidden costs which can include:
Expense ratios, 12-b1 fees, sales loads, contingent deferred sales charges, M&E contract fees, living/death benefit fees, commissions, advisory fees, revenue sharing expenses, rate spreads, rider fees, and administrative costs.
The title of this article suggests that your confidence is required when you put critical decisions about your future and your business into the hands of another person and I couldn’t agree more.
TRUST IS MOST CERTAINLY, THE KEY.
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