May 15, 2013

How Do You Make Your (Financial) Decisions?

This week I have been attending an AICPA Employee Benefit Plan conference in Dallas, Texas. This is my first conference of this type, so I was a bit apprehensive as to what I would "get" from the conference. That apprehension did not last long.

The very first session was a general session with a recorded video from the Assistant Secretary of Labor (note - due to a meeting, she was unable to attend). Of course, there were numerous parts of the video that did not really interest me, but then the speaker stated...

"How do you make your (financial) decisions?"

Suddenly, I was listening to the speaker talk my kind of language...

She was talking about how the Department of Labor (DOL) was interested in how employees made their financial decisions. One of the quick things the speaker stated was that the DOL had come to the decision that bad, conflicted advice was worse than no advice... Um, not good.

The DOL was looking for things like:

  • How do you make retirement decisions?
    • Do you read, talk to someone, "just know," or ???
  • If you do talk to someone,
    • How do you choose?
    • How do you know this person has your best interest in mind?

So, if the DOL is interested in this information, I should be too. Please tell me your answers by emailing me

The speaker then mentioned how a SEC registered investment advisor representative has a fiduciary standard whereas a broker usually has only a suitability standard.

In case I have lost you, the standards above are not the same thing.

The "Fiduciary Standard" is the highest standard of care. A fiduciary must work in the best interest of the client only and not in the interest of the fiduciary. In fact, by being an SEC registered investment advisor representative, the representative has stated that they will follow the fiduciary standard.

The "Suitability Standard" is different in that the investment that is being offered only has to be considered "suitable" not necessarily in the client's best interest. Broker-Dealers and their representatives are usually held to this standard.

What does this mean to you? Well, it depends. I have reviewed hundreds of portfolios over the years. Some have been suitable but benefit the representative more than the client due to commissions and fees that might be hidden from the client (think annuities as an example). Some have clear fees and are setup to help the client, but maybe the funds are just lackluster and the representative does not trade much or ever. Some have been spot on with clearly defined fees, well regarded funds, and a good track record...

What I am trying to tell you is that not all your "advisors" are created equal or even follow the same guidelines. Do you know how your advisor gets paid? I promise - your advisor is being paid.

In another class at the conference, the speaker stated, "Most employees think that their plans are 'free' or 'very low cost' since they are not 'charged' fees." As I have discussed before, there are numerous investment products that charge very high fees, but some could be hidden in the "fund expenses" of the plan. Do you know what you are really paying for your accounts?

All of these questions are important, and if you do not know the answer, do not be afraid to ask. The markets have been great since March 2009, but that does not mean that you cannot question your advisor.

I would enjoy hearing from you about your answers to all of these questions, and if you wish to ask me questions, feel free. My email is

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