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The financial reform bill now
under consideration in Congress may or may not pass. But already, the folks
in DC made the task of obtaining good financial help easier.
Under pressure from
brokers and insurers who contribute much to political campaigns, the
drafters of reform took out the one thing that would have best served the
public. That one item was the requirement that all those who provide
investment advice be fiduciaries; by law they would have to always act in
the best interest of their clients.
The fact is: a broker has a
strong incentive to earn commissions. He can do this by having you trade
securities or by convincing you to go into a wrap account from which he and
his firm extract fees whether or not anything is done on your behalf.
Similarly, the goal of an insurance
agent is also to earn commissions. While agents can be helpful in obtaining
appropriate insurance coverage, in the realm of investments their
sales-charge loaded mutual funds and annuities raise their income, not
yours.
In medicine, doctors take an
oath requiring that they serve their patients. Lawyers abide by similar
loyalty to their clients. In finance, some professionals are bound by laws
and similar oaths |
to work on behalf of clients. Most are not. If you invest
through a broker, or insurance agent, or anyone else who earns their income
through commissions, you can do yourself a big favor by switching to a
person and company you can trust.
Who can you trust? For one, a
fiduciary. There are people out there who by law are legally obligated to
act on your behalf. Certain financial planners and registered investment
advisors are fiduciaries. Counselors at no-load mutual fund families and at
discount brokerages are also often so classified.
Just as doctors and lawyers
proudly display their credentials on the wall, ask whomever you talk with
about their background. Why should you listen to them? And ask how they are
paid. If they get commissions, consider finding someone else.
Since Congress avoided doing the
right thing by not broadening the list of professionals who must abide by
fiduciary standards, the task of finding good investment advice ironically
became easier. Ruling out the full service brokers, insurance agents, and
other commission seeking non-fiduciaries; limiting your choices to those who
must work for you; the list of advisors you should even consider is vastly
shorter. And better. |
April
21, 2010