More Fiduciary Shenanigans
About a year ago I published a podcast warning people about the “Fiduciary” label. It’s an important distinction that implies the highest levels of integrity and I’ve seen it abused on far too many occasions. It’s as if some advisors state that they are a fiduciary so you let your guard down. They are required to act in your best interest so why would you ever challenge that? Well, that’s exactly what I’m telling you to do. Challenge the assertion from anyone who claims it because no one but you can truly determine what is in your best interest. You are the only true fiduciary.
For the purpose of this letter and others similar I’m going to make this disclaimer: I am not talking about all agents and financial advisors who carry the fiduciary label. Clearly I only hear from clients of advisors who have not acted in the client’s best interest. Clients of good advisors are getting the explanations they need and obviously don’t need to seek clarification from other professionals.
This story involves two people who claim to be fiduciary advisors. One of them is on the insurance side and the other on the investment side. The guy who made an appointment was being pulled between the two, each claiming to have his best interest in mind. He had already bought the annuity and he wanted to talk to me because it had underperformed expectations. He was misled about a bonus and feels like he missed the last two years of growth in the market. Now that he knows he doesn’t want the annuity he owns, he’s trying to make the right move now. With seven or eight years until he retires there is plenty of time to figure it out.
It started when he put 80% of his portfolio into an indexed annuity two years ago. I knew this going into our meeting and regular followers of mine should know what my first question was. What is the purpose of this annuity? The guy didn’t have an answer for me. It was an income product that was set to give him guaranteed retirement income but he said he hadn’t really given much thought to how much income he would need. With retirement several years away he hadn’t started with the basics of defining his goals. The salesman claimed to be a fiduciary and that was enough to earn the trust of the client. You tell me if you think it’s ok to overstate potential performance on an annuity with no clear goals defined. Is that how a fiduciary should act?
Clearly by making the appointment this consumer was hoping to find justification for bailing on the annuity. It would cost him a substantial amount of money in surrender charges and I don’t recommend that in most cases. With no goals defined for his retirement plan, there is no way for an outside person like me to give him any advice. He met with another fiduciary on the investment side of things and that’s where he got the idea to surrender the contract. Since the annuity hadn’t matched market returns then it’s an easy emotional sale for the investment manager. Just look at how many gains the consumer has missed. He would have done much better under management in the past two years. Is that in his best interest? Paying a giant penalty to get out of the annuity and invest at the top of the market. There has to be a better way.
The fiduciary who sold the annuity made a nice commission and isn’t providing service on the contract. Another fiduciary who wants investment management fees wants the consumer to bail so he can increase his book of business. Neither of them is acting in the client’s best interest and both have had the opportunity to actually help. My conversation with the consumer was a little more than 20 minutes and I already had a few ideas for him. If I were to do the right thing then there’s no way for me to make money so my motivations should be beyond question.
This person is several years from retirement and saving a nice chunk of money every year. He has time to figure things out and the worst possible thing he could do is lose a bunch of money in surrender penalties without a goal. He needs to define retirement goals first and then slowly work the current annuity into the goals. Since he is unhappy with the contract that he owns then a free withdrawal each year allows him to incrementally get into other investments. Over time he can significantly reduce the annuity allocation without making a rash decision right now. He may find that it makes sense to keep part of the annuity for retirement income.
If he doesn’t want to keep the annuity then he’ll be able to get at least 70% of his initial investment out of the contract before it’s surrender free. And if he wants to get more money into the market then it’s better to do it gradually than all at once. These are just ideas that give him more than just two extremes offered by other people who are obviously looking at what’s in it for them. This guy has plenty of things to think about and a variety of options. He gets to decide what he likes best. He is the only fiduciary.
I know a lot of good fiduciaries. And I hear about a lot that use the label only because they don’t want you to question their advice, which is more appropriately called a sales pitch. That’s exactly why you should question it and seek a different opinion. If two opinions differ then there’s a good chance that neither one is in your best interest. I will always give you multiple options because only you can decide what you think is best.
Have a great weekend!
Bryan
Watch Episode 212: More Fiduciary Shenanigans
Last Updated on January 31, 2026 by Bryan Anderson
Nicely done!
Bryan, good advice for the annuity holder. As a CFP and Fiduciary, I never thought that another Fiduciary would sell any product without knowing the client’s goals and time horizon for starters. I guess I am naive and too trusting in this case of other professionals.