Monday, December 28, 2009

Get Your Investment Advisor to Work for You

Your physician recommends that you undergo surgery or your attorney outlines a sensitive legal strategy. Regardless of whether it’s your health or serious complications with the law in question, most would agree that there is a lot riding on the advice we receive and the decisions we make based on it.

Since the point of going to the doctor/lawyer in the first place was to seek expert advice, short of seeking a second opinion, the trust we place in them usually sways us to accept their proposals. We believe them to be more expert than us and trust them to have our best interests at heart. Doctors and lawyers and others serve in the role of fiduciary which means to put their patient or client’s best interests ahead of their own. Without this fundamental precept, no rational person would agree to put themselves at risk.

This begs the question then as to why so many people entrust their financial well-being to a non-fiduciary; a financial professional who is not obligated (or required) to act in their best interest? The most likely answer, it seems to me, is that too many people are simply unaware of the fiduciary distinction in financial services. They mistakenly give their financial professional the benefit of the doubt based on a personal referral or some other vote of confidence. Unfortunately, this seemingly innocent omission can, and often does, lead to serious consequences.

According to Barbara Roper, director of investor protection at the Consumer Federation of America, “The average investor would be appalled to see how hard some members of the financial industry are working to avoid acting in the best interests of their clients.”

Doug Holthaus of the Cincinnati Enquirer points out that a little-publicized item in the financial reform bill currently moving through Congress would require anyone who offers investment advice to act in the best interest of their client. “That there’s a need to actually legislate this says a lot about the state of the investment business today,” he said.

So, what is the investing public to do? Simple. Take 5 minutes to become more aware. Holthaus provides a clear, concise description of the differences between investment fiduciaries and non-fiduciaries. Reading his article, Get Your Investment Advisor To Work For You, won’t guarantee success, but it could be your first, best step in the right direction.

Do you think Congress should pass legislation that mandates a fiduciary standard for all investment professionals? If Congress doesn’t pass such legislation, are you more or less likely to hire an investment fiduciary to manage your money?

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