Don’t Fall For The “Fiduciary Standard” Label
This is a tricky one to talk about because the term “fiduciary standard” gets thrown around a lot. Sure there is a legal definition for a fiduciary but there are a lot of people who claim it and have no right to do so. I could easily say that such a thing does not exist but in some specific situations it is required. Sophisticated trust, estate, and tax planning situations call for a fiduciary to oversee everything but when it comes to financial advisors it’s a whole different story. When creating a financial plan, who besides you, can say what’s really in your best interest?
I’m not just picking on the term because I don’t like it. This comes after hundreds of people have come to me saying that some fiduciary made a recommendation that seemed to make very little sense. Lots of guys claim they are a fiduciary so maybe you won’t question what they tell you to do. A great example of this is Fisher Investments. They are fiduciary advisors and their business model seems to indicate that they think it’s in a client’s best interest to be invested 100% in the stock market if you have more than $500K to invest.
The suitability standard is less stringent and requires that a recommendation is merely suitable for the consumer. In my experience, this is applied in about 99% of proposals, whether a fiduciary pitched it or not. If you need to come up with some extra monthly income in retirement, an annuity is suitable. If you have a bunch of money and coming up with the additional income is not a problem, full investment in the stock market might be suitable. But which is in your best interest? We can argue all day about appropriate allocations and risk tolerance but my opinion doesn’t matter. An investment guy will sell stocks and bonds while an insurance guy is going to sell an annuity. Both are biased and only you can decide which is truly best.
I already hit the CFPs but there’s a problem with fiduciary advisors as well. It’s not to say they are bad advisors but a lot of people take their word and end up with plans or products that are barely suitable and definitely don’t meet the fiduciary standard. How can you know if something is in your best interest if you don’t understand it? You put a lot of trust in these people at your own peril and this wouldn’t be a topic unless I’d seen it too many times to count. “Well, he says he’s a fiduciary so it has to be a good idea, right?”
Last year I sold an immediate annuity to a couple that needed a quick easy income bridge for seven years. They came up with the idea and it made a lot of sense especially when we looked at the numbers. I noticed they had a lot of other assets but they didn’t engage me to talk about those so we never got into it. We closed the deal and their short-term income plan was in place. Last week they called because they had been searching for other retirement help and found a fiduciary who made them a pitch.
This fiduciary wanted management of their sizable 401(k) but suggested they put half in a Registered Index Linked Annuity. It’s like a fixed indexed annuity but you can lose money in some situations and most come with contract fees. I’m not a big fan of these products but I won’t ever stop anyone from buying one, so long as they understand what they are getting into. The problem in this case is that these clients had little idea what it even was. They couldn’t figure out why this in particular had been proposed. Not enough information was coming from the fiduciary so they called the only other annuity guy they know.
Really my only question was, “why do you want that?” They had no idea why they would buy it. But the guy was a fiduciary so it had to be legit. It was a large sum of money so they were right to request a second opinion. When they couldn’t clearly define the goals this annuity would help them reach, I determined this to be nowhere near their best interest. The advisor hadn’t done his job and possibly expected them to just trust him because he claims to be a fiduciary. This happens more times than you can imagine.
People ask me all the time whether I’m a fiduciary. The only thing I can say is that I try to be, but it’s not a badge I’m desperate to wear. Education creates confidence and I push for that very aggressively. Options are extremely important and not just different products. You have to start with strategies. With just about everyone I meet, we first talk about finding goals. We look at how a plan works without annuities, then how it’s different with annuities. If someone decides to take the annuity route I’ll typically show them two or three different ways to do it. The result is that everyone who works with me learns a lot along the way and gets to make the final decision about placing retirement funds. You can decide if you think that’s a fiduciary approach.
There are several participants within the financial services industry who want a fiduciary standard applied to all sales and transactions. I suppose I don’t care if it is but it won’t make a difference. Fiduciary care is a matter of opinion and just as many mistakes are made here as with any type of standard. When it comes to your retirement money, the only true fiduciary is you.
Have a great weekend…
Bryan
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Last Updated on January 23, 2025 by Bryan Anderson
