Fiduciary Advice – an update

Financial Decisions Driven By What is Best for You

I read volumes on how banks, insurance and brokerage firms are providing their clients with ‘cost free’ financial plans.  It never fails that when I review these ‘cost free’ or ‘low cost’ financial plans that they are, at best suitable but never the best choice for that client.  I’ve yet to review a financial plan that was ‘free’ or ‘ low cost’ and yet addressed fully and appropriately what was critical in their entire financial life.

Today I read an article by Ann Marsh that agrees with my position and highlights that the CEO of the largest Registered Investment Advisory firm is now a fiduciary evangelist.  (Maria Elena Lagomasino in Florida was highlighted in this article at ).

Lagomasino and others in this article speak about the unfortunate number of “planners at large banks and brokerage houses that run their business to benefit themselves as much, or more, than their clients.” She adds some startling statistics and says, “about 90% of the investors out there think they are talking with somebody who is an advisor, and instead they are really talking to a broker who is not working under that standard.”  She points out that the prevailing ‘suitability standard’ is not enough and that all advisors need to follow the fiduciary standard.

It is encouraging to hear others describing my belief, that all investment advice should be first and foremost ‘best for the client’ and not just suitable for the client.  It is for this reason that we don’t accept commissions and offer multiple ways to work with clients. I want the client to know that we are different and are driven to follow what is best for them not just sell them something suitable.  Although commission and assets under management are the common ways to offer financial advice we provide our services through hourly, project retainer, or assets under management models.  Under each model our goal is to always help our clients make the best decision for their specific situation while charging a reasonable amount for our services.

The fiduciary model requires that we sometimes tell clients what they don’t wish to hear.  For example, the markets are volatile and will likely remain so in 2012.  If clients do not understand that cash remains an asset class then it is time that we educate them.  If they are told by others to invest in alternative potentially high yielding investments it is our role to evaluate and tell them why this may/may not be appropriate for them.  What I know to be the best answer for them today should drive my advice and there should be no temptation to modify that answer with what may be suitable but good for our bottom line.

I have a passion for financial education, transparency and freedom of choice.  I strongly believe that an educated investor when provided with transparent choices will make the best choice for them.  If advisors all acted in a fiduciary manner then I would no longer review plans that land clients in positions that are not appropriate for their situations and who thought they had been paying for advice that was tailored to their specific needs.

If you are an advisor I challenge you to create a fiduciary based advisory process and evaluate your success, at least partially, on whether your clients reach their goals.

I always recommend that individuals learn as much as they can and seek advice from someone who practices under a fiduciary model that always puts a client’s best interest before their financial bottom line.

Edi Alvarez, CFP®

Pershing on creating a common vision

The key to creating a common vision

Information for this post derived primarily from an Investment News interview with Brian T. Shea, CEO, Pershing, LLC, “The key to creating a common vision,” Jan. 1, 2012:

As we reviewed brokerage firms to custody our client assets we landed with two very different brokerage firms that have a similar attitude.  Below is a summary of an interview with the lead at one of these brokerage firms, Pershing.

Brian T. Shea is interviewed often since he became the chief executive of Pershing LLC (in 2010), which, with $910 billion in assets under custody, is the biggest brokerage and clearing firm that most investors have never heard of. Owned by The Bank of New York Mellon Corp., Pershing employs more than 7,000 and provides services to more than 1,500 financial organizations and 100,000 investment professionals.

AIKAPA has considered the usual brokerage firms but has instead decided to custody our client assets at either Pershing or Scottrade – In our evaluation both of these firms provide the most service for the least cost.

Pershing’s Shea believes in creating a leadership environment where people can be successful and where you can get people to work together. The most important thing a leader has to do is create a shared vision, or mission, for the team.  He prides his leadership style as one that emphasizes communication.

The No. 1 person was his father who was an executive in the insurance industry. His father taught him that any profession can be a good profession but we need to do it with a passion every day – I could not agree with him more.

His comments that his father instilled a really strong work ethic in all of his children.

He said that he is really comfortable in an environment where people are open and engaged. He believes that it is really important to surround yourself with people who will share their opinion no matter what — even if they know you won’t like it.

As we move into 2012 we’ll engage more with Pershing as we transfer our clients from their current brokers to either Pershing or Scottrade.  I’m certain that as the year progresses I will be better able to comment on how well his vision translates to what advisers and our clients experience using Pershing to custody assets.

Edi Alvarez, CFP®