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With a heightened focus on providing fiduciary care, I’ve developed a worksheet that I give to prospects to determine if I – or any other broker or advisor – will always act in their best interests.
My approach is relevant following the passage of the Securities and Exchange Commission (SEC) Regulation Best Interest (Reg BI). Social media is lighting up with praise and condemnation about how investment professionals will be regulated (or not) under this policy during the transition period, until June 30, 2020, and thereafter.
Any attempt to define and regulate a fiduciary standard for an industry as diverse as ours will always be a work in progress. Meanwhile, the nature of offering financial advice that has lifetime implications for the public we serve should always be held to the highest levels of fiduciary responsibility – regardless of any governmental regulation.
As our industry and its regulatory bodies continue to struggle to find common ground to meet the public’s best interest, those clients whom the regulators hope to protect look on with increased confusion and growing distrust.
Who can be trusted?
Consumer trust is the bedrock on which a long-term professional relationship is built. Without a solid foundation of trust, relationships crumble. But how does a person decide whom to trust when shopping for a financial advisor?Even with an ideal fiduciary policy, consumers will still have to decide whom to entrust with life savings and the fate of their financial future.
Trust is about what I do, not what I say
Someone told me a long time ago, “Those who ask for your trust before earning it shouldn’t be trusted.”
Prior to Reg BI, anyone could call themself a financial advisor regardless of whether they have professional standards of practice. Similarly, people can claim (or pledge) they are “fiduciaries” without first demonstrating why they hold themselves in such high regard. So how do clients know for sure? The real proof that professionals are conducting all their business affairs at a high level of fiduciary responsibility is best verified by what those professionals do, and how they do it, and not just by what they say they do. One particular adage by Ralph Waldo Emerson – “What you do speaks so loudly that I cannot hear what you say” – is appropriate here.
A fiduciary act by the consumer
Locating, investigating, interviewing and hiring a lifetime financial advisor is a fiduciary act of the consumer for that consumer’s future financial self. It is the single most important decision consumers can do for themselves before making a life-changing financial commitment. When diligently completed, a thorough prehire interview can reduce the risk of being underserved by the advisor or – worse – defrauded.
Most people haven’t a clue about how to properly interview a potential financial advisor. I noticed this lack of knowledge when potential new clients would meet with me before engaging my services as a financial advisor. They often struggled to ask questions beyond how much I charged and what investments my firm utilized. During such interviews, I voluntarily brought up additional characteristics they should consider before hiring me or anyone else to be entrusted with their financial affairs. I explained that I looked and sounded just like someone who could be trusted, but the same was true of a thief at first glance. I went on to say that they should please evaluate me by how I conducted all aspects of my business, and then they would be able to discern the difference for themselves.
After encouraging potential clients to dig deeper into my professional background and business practices before deciding to hire me, the cost for my services usually didn’t come up again.
Assessing the seven Cs
As an education tool, I created a comprehensive financial advisor-vetting exercise called Hiring a Lifetime Financial Adviser – Assessing the Seven Cs. The seven Cs are character, commitment, communication, competence, comprehensiveness, connections and compensation. It provides sample interview questions for each of the seven Cs and a question-and-answer worksheet for the financial advisor to complete before a “meet and greet” appointment. This exercise also includes website addresses for third-party industry and regulatory resources that provide background information on a potential financial advisor or advisory firm.
Advisors with clear business records and who are well-balanced in each of the seven Cs are often worthy candidates to win the trust and the financial resources of those who interview them for a potential lifetime business relationship.
Does this assessment guarantee that the financial advisor will always act in a fiduciary capacity? No. Putting a client’s interest first is a daily decision based on the moral character of the advisor. The seven Cs assessment does, however, weed out the not-so-obvious weaker candidates who may not be inclined to fully serve their clients’ needs at a consistently high standard of care.
My booklet, Hiring a Lifetime Financial Adviser – Assessing the Seven Cs, is available for free here. Also, check out my book, Retirement Is Recess for Grown-Ups, which includes an entire chapter about the reasons and methods for hiring a lifetime financial advisor here. Enter the code “AP” when you purchase the book to receive free shipping as an Advisor Perspectives reader.
Jim Collier is an author and founder of RetirED LLC, a nonaffiliated retire-ready resource company located in Larkspur, Colorado. Prior to becoming a full-time writer, Jim was a Certified Financial Planner and owner of Collier Financial Inc. for 32 years before completing a business succession with his son in 2017. Jim writes and speaks about contemporary retirement lifestyle and business succession planning topics for groups and conferences.
For more information, visit www.retirementrecess.com or email Jim at [email protected].
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.