In the world of healthcare, representatives of pharmaceutical and medical device firms do not administer advice directly to patients. This avoids the inherent conflicts of interest as representatives have a natural incentive to sell as much of their product and this could influence the advice in a manner that it is not in the best interest of the patient. Unfortunately I wish I could say the same for the financial care field.
The financial service industry doesn’t always require the same level of care – it can differ from firm to firm. Some financial service firms recommend products that they create or holdings they have on inventory that they don’t deem worth holding onto anymore. Some are required to act in your best interest first while others only have to determine if a product is suitable. A recent New York Times editorial by former Goldman Sach executive Greg Smith and the Fox News report “Citigroup's Embarrassing E-mails” sheds some appalling light on how the financial customer could be adversely affected in some cases.
What can you do? The first thing that you can do is understand the difference between a fiduciary arrangement and a brokerage engagement in a financial service engagement. A great whiteboard video showing the difference was produced by Hightower Securities which compares brokers to butchers and fiduciaries to dieticians. In simple terms, you don’t want to ask a butcher if a certain cut of meat is healthy for you.
If you then believe that your financial service advice you receive should be held to a fiduciary standard, I recommend going to The Committee for The Fiduciary Standard website and pull up their Fiduciary Oath. I would print this and provide this to your current or prospective financial advisor to sign. If they sign this, it doesn’t eliminate all potential conflicts of interest, but it requires disclosure of material items and that the advisor acts in your best interest. If they refuse to sign it, at least you know the type of engagement you have and you can make the decision to continue the engagement or move on.
Finally there is a debate going on in Washington concerning the subject as some parties don’t feel a fiduciary obligation is necessary or is too onerous and would prefer things to remain “as is” or to create a watered down definition. Unfortunately many of our elected officials haven’t expressed an interest and/or expertise on the subject. If you feel this is important, I recommend that you forward the above whiteboard demonstration to your representatives.
Blogger's note: I hold a fiduciary duty to my clients.
Jeff Bogue is an independent, fee-only financial planner with his firm, Bogue Asset Management LLC, serving individuals, families and small business owners nationwide since 1997 with offices in Wells and Portland, Maine. Jeff has been a Certified Financial Planning Practitioner since 1997 and has been quoted on personal financial matters in the Wall Street Journal, Consumer Reports, Consumer Reports Money Advisor, Kiplinger’s Personal Finance, Businessweek.com, Bankrate.com The Portland Press Herald, AARP Magazine, Registered Rep.com, Fidelity Stages Magazine, AOL Money & Finance, MSN/CNBC.com, Investment Advisor Magazine, Financial Planning Magazine and Financial Advisor Magazine. He is an active member of the National Association of Personal Financial Advisors, the Financial Planning Association and the Maine Estate Planning Council.