posted on March 13th 2017 in Austin CFP Team Posts with 0 Comments /

This post is a preview of WorthPointe’s e-book Evidence-Based Investing: Separating Fact From Fiction, written by Certified Financial Planner™ Scott O’Brien. In Evidence-Based Investing, Scott discusses the myths and misinformation that most often slow or halt our financial goals. Get your complimentary copy of Evidence-Based Investing here.


A fellow falls in a hole and can’t escape. He calls for help and a man arrives. The new man says, “I’ll go for help.” And he leaves.

Another man arrives and tosses down a rope, but it’s too short to reach the fellow in the hole, so he leaves, too.

A third man arrives and jumps into the hole.

“Why did you do that?” the trapped man cries. “Now we’re both in the hole!”

“Don’t worry!” the new man exclaims. “I’ve been here before, and I know the way out.”

Your advisor should serve as a fiduciary. I call this the “F” word. For your family’s sake, you should only deal with an investment advisor who is a fiduciary. By law, a fiduciary is a person who has to put your interests above his own. For example, attorneys and CPAs work under this level of responsibility.

You should know that a financial advisor, financial planner, investment representative, or whatever they call themselves these days at the nation’s stock brokerage firms, banks or insurance companies, will most likely not work as a fiduciary. They operate under a “suitability” standard.

The suitability standard, which is a much lower standard than a fiduciary and is much easier to legally meet, means the advisor has determined the investments he is recommending are “appropriate” for you. For example, the advisor could legitimately argue that a retiree who desires more income would be “suitable” for an annuity product.

However, the advisor could recommend an annuity that paid him a higher commission or allowed him to win a trip for meeting a sales goal — even if it wasn’t the best annuity for you.

Despite its “feel good” advertising, the brokerage industry is not really on the side of the regular investor. You only need to witness the government lawsuits against Wall Street powerhouse firms such as Goldman Sachs to understand this point.

As an advisor, it’s hard to see how Goldman Sachs acts as a fiduciary with its clients. In fact, one of its arguments in pleading its case was that their advisors weren’t acting as fiduciaries when dealing with some of their clients. So Goldman Sachs doesn’t even pretend to be on the side of the client when involved in litigation.

Fortunately, there is an easy way to deal with the fiduciary situation. Just don’t deal with anyone who won’t agree in writing to act in a fiduciary capacity when advising you on your financial matters.

Advisors who work for Registered Investment Advisor firms are covered under the Investment Advisors Act of 1940, so they must act in a fiduciary capacity with their clients. Financial advisors who work at brokerage firms, banks and insurance companies most likely will not have that obligation.

Always ask the advisor how he is compensated. I’ve heard a number of radio show hosts claim that “an investor doesn’t pay anything we get paid from the insurance company.” While this line may be technically correct, don’t be fooled. The “advisor’s” (salesperson’s) compensation comes indirectly from your investment.
Read the rest in Evidence-Based Investing. Get Your Complete Copy of the Book Now.

about the author: Scott W. O'Brien CFP®, EA

scottScott W. O’Brien CFP® is a CERTIFIED FINANCIAL PLANNER professional who serves clients by coordinating their financial lives and assisting them in making smart financial decisions within the areas of investments, retirement planning, insurance strategies, tax minimization, and estate planning.

Scott was honored as the winner of the 2015 Five Star Professional Wealth Manager for Austin, San Antonio and the Central Texas region. He has been quoted in the Wall Street Journal, US News & World Report, and Investopedia.

Learn more and/or Contact Scott

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