Why you need a Fiduciary (Wealth Bestfriend™️) in your corner.
Fiduciary : A legal obligation of one party to act in the best interest of another. The obligated party is typically a fiduciary, that is, someone entrusted with the care of money or property. Also called fiduciary obligation.
As an Attorney and a Trustee, I AM a fiduciary. I don’t take this lightly and I and proud to say I have the ethics hotline on speed dial to make sure what I am doing is ethical and all my decisions and advice are for YOUR benefit.
However, everyone that calls themselves a fiduciary may not be.
I recently accompanied my mom to her financial advisor meeting at a “big bank.”
She told him she was looking to rollover an Individual Retirement Account to their bank and wanted to start learning to invest. After hearing this, the first words out of the advisor’s mouth was she should instead convert the self-directed account she had just opened into a managed account. She agreed.
BUT go back and re-read what SHE CAME INTO THE BANK TO DO. Did you read it? Okay, now with that in mind, do you know why her advisor told her to convert her account?
What he failed to fully explain is that the reason he wanted to convert her account, wasn’t truly for her benefit. A managed account ensures ALL transactions (buying and selling of stocks/bonds/funds/options) had to go through him and it gives him control to filter everything she ACTUALLY wanted to do i.e. learn to invest.
I mean, just think about it, the filtering had already begun. She came in for a specific purpose and he had already filtered that into what he wanted. Would you like to know another reason why he made the managed account suggestion? In the fine print (yes, I read it) of the managed account opening paperwork, it says “WHEN YOU ROLLOVER OR TRANSFER RETIREMENT ASSETS FROM ANOTHER FIRM [THE BANK] EARNS COMPENSATION AND WE MAY ALSO EARN MORE, AND YOUR ADVISOR WILL BEGIN TO EARN COMPENSATION IF YOU CONVERT A SELF DIRECTED ACCOUNT TO A MANAGED ACCOUNT. ADVISORS ARE NOT CURRENTLY COMPENSATED ON SELF-DIRECTED INVESTING ACCOUNTS” I showed her the paperwork and she was stunned, all she said was, “but he didn’t even mention that.”
I know.
That’s the problem. He was too busy giving her the sales pitch about being a fiduciary and his duty of loyalty was to act in her best interests. I’m not even going to mention that once he got the managed account funded he wanted her to primarily invest in mutual funds. Can you guess why? You guessed it, its because he gets a commission on that too.
When I asked if she would be able to buy stock on her own, he said yes but it would cost $25 a trade if she didn’t call him first. So it would be better to call him and let him know the trades she wanted to make and then he could get the fee waived.
My heart stopped.
Does the advisor know that there are brokerage companies that are commission-free?
Why would anyone ever pay $25 to buy and sell stock with THEIR own money?
This doesn’t sound too bad when you have a long history of trusting others to do things for you. You get a dedicated advisor who will invest your money and you don’t have to know anything about what is going on. He is just going to make you money.
I hate to break it to you, it doesn’t work like that. This approach will leave you looking at your account wondering why it isn’t growing. The short answer is, it is always going to be because of the commissions and/or fees. You pay them whether you make money or lose money.
After leaving the meeting I was sad for my mom. She had come so far. To give you background information, she is ultra-risk adverse so the fact that she had finally wrapped her mind around the idea of investing by making her own list of potential investments, watching the stocks, and even memorized the ticker symbols (I’m so proud) but left the bank she trusted getting nothing that she went there for.
I’m not shocked that this goes on but I am trying to figure out how to help more people avoid this situation. My business is based on the adage if you “Give someone a fish, you feed them for a day. Teach someone to fish, you feed them for a lifetime.”
This big bank experience reaffirms I’m on the right track. My goal for all of my clients is self-sufficiency because that gives THEM the power. In teaching people to get out of debt, invest, and plan for the legacy they want to leave, they have the knowledge to know when something isn’t right and can course-correct before it is too late. The big bank wanted to give mom the fish to keep her dependent on them.
Luckily, she was wise enough to see through what the bank was trying to do. She rolled over her account to another firm and I’m pleased to say when she called to make sure the transfer paperwork was done correctly, they asked what HER plan was for the new account. She told them she was new to investing and wanted to learn and they let her know they had managed accounts in case she got overwhelmed, and proceeded to direct her to their learning center which they said would be a great resource for a new investor.
THAT’S EXACTLY WHAT I HAD HOPED THE BIG BANK WOULD HAVE DONE.
Have you had a similar experience at a bank? I hope not but if so let me know.
Love,
J
I’m glad that in the end she made the right decision and has the freedom to manage her account. 🎉🎉