What do you mean they don't have to have to act in my best interests?!?!

Many people who I talk to about finances are surprised to learn that the person giving you financial advice does not necessarily have to act in your best interest when giving you that financial advice or performing investment management services. That is, they are only held to a “suitable” or “legal” standard and not the fiduciary standard. 

 

You might be thinking, "OK, I can read that Investopedia link you just provided, but what exactly does fiduciary mean?"

Well, two recent high profile stories help illustrate the point:

The first example relates to a sales contest run by Morgan Stanley where the advisors were allegedly pressuring their clients to buy a product and service that they didn't necessarily need. Sales contests and account opening pressure (like the recent Wells Fargo case) can be common in non fiduciary environments and customers can end up getting put in high commission products with better alternatives.

“Massachusetts charged the wirehouse with conducting an unethical, high-pressure sales contest among its financial advisers to encourage clients to borrow money against their brokerage accounts. The contest was run despite an internal Morgan Stanley prohibition on such initiatives.”

A simple internet search of sales contests in financial services or unfair commissions in financial services will bring up a long list of violations and abuses by the financial services industry. And we're not talking about Bernie Madoff type of stuff, we're talking about the kinds of brokers and advisors many ordinary people are using.

The second example relates to Fidelity Investments and the potential conflicts that arise when both the Johnson family and Fidelity fund managers both see a private equity investment that they believe is a good investment. According to Reuters:

“The company’s tradition of putting clients’ interests 'before our own is a big part of what makes Fidelity special,' the fund firm says in its mission statement. In at least one lucrative field, however, the Johnson family’s interests come first. A private venture capital arm run on behalf of the Johnsons, F-Prime Capital Partners, competes directly with the stable of Fidelity mutual funds in which the public invests. It’s an arrangement that securities lawyers say poses an unusual conflict of interest.”

So while it is absolutely possible to get great financial services from advisors and companies that are not fiduciaries, the investment lines of “suitable” advice are often gray and potential conflicts can arise even in well-intentioned firms. You should ask your advisor or firm about any potential conflicts they have and be sure you are satisfied with their answer.

But why not work with someone who is bound to work exclusively for your best interests? Helping you holistically with your dreams and goals? You probably should. Whether it is with J. Bradford or another fiduciary, I absolutely recommend that everyone looking for financial advice ask if the person they are working with is a fiduciary and if not, why not. Maybe you'll be satisfied with the answer, maybe you won't.

Some clients and prospects do occasionally ask about the fiduciary standard and if we operate to the fiduciary standard when giving investment and financial advice. I love answering that question. The answer is unequivocally yes and it is part of the reason why I founded J. Bradford Investment Management as an independent RIA (Registered Investment Advisory) firm. We put our clients first and you get our unbiased, conflict free advice about all your financial matters.

If you'd like to have a contest, let's raise some money for charity.

PLEASE REMEMBER:

- Investing and investment management involves risk, including the loss of your initial investment or any investment gains.

- Past performance is no guarantee of future results.

- This generic information is provided for educational purposes only and should not be construed as a recommendation for any individual to take a specific action.

- Please invest prudently and seek professional help from a financial advisor, investment manager, accountant, lawyer or other professional on matters that you are unsure of or that are unique to your personal circumstances.

- Financial Planning and Investment Management Services provided by J. Bradford Investment Management, Nashua NH.