When is the best time to be prudent? Most investors respond, “It is always the right time to be prudent.” And they’re exactly right.

If imprudent risk-taking and speculation has cost you money, the worst thing that you could do is participate in imprudent, speculative, and risk-taking activities going into the future.

If you are using an adviser or you do it yourself these three activities you are speculating and imprudent.

• Stock picking
• Market timing
• Track record investing (picking fund managers based on past performance.)

We as investors have been taught these three activities are what investing is about. The financial media and the large brokerage firms and even insurance companies have convinced investors this is investing.

There are numerous studies proving that the above activities do not benefit the investor. But rather benefit the large brokerage firms, banks and insurance companies.

So why do people often insist on continuing with the imprudent behavior? Because to admit that there’s a better way, they, in effect, have to admit that they were originally wrong.

To admit that our own behavior or decisions were ill-founded in the past is threatening to the personal ego. This realization can be extremely painful to deal with.

For many people, it is easier to make a bad decision even worse by continuing the destructive process than to face it head on.

There is a better way. A prudent process that incorporates academic and scientific research. Some of which have won the Nobel Prize in economics.

The opportunity, here, is to realize that you are not your decisions, and just because you made an improper, or imprudent decision in the past, does not mean that you are less of a person, or less intelligent.

As a matter of fact, it’s a sign of intelligence and growth to solve and put an end to a destructive process when you become aware that it exists.

To succeed in investing you must own equities…..globally diversify……rebalance.

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The debate continues on setting the fiduciary standard for all advisers working with retirement plan participants.

Perhaps a little background on the fiduciary standard vs the suitability standard is in order.  The suitability standard which applies to all brokers of brokerage firms and insurance agents. This standard is one that allows the advisor to make recommendations to the client that may or may not be in the client’s best interest.

What this really means is the broker/agent only needs to determine if the product is suitable to the client. These broker/agents are not accountable for these recommendations.

As an example, the broker/agent is selling a U.S. Large Cap Growth Fund to the investor. That fund can be their firms’ proprietary fund which may have a higher cost and poor performance. There are better alternatives, but because the U.S. Large Cap Growth Fund is suitable for the client. The broker/agent can sell the higher priced, lower quality fund to the client. Thereby, providing more fees to the broker/agent and their brokerage/insurance company.

As you might guess the fiduciary standard requires the adviser to use the fund which is in the best interest of the client. This would include all solutions recommended by the fiduciary adviser.

Registered Investment Advisory firms follow the fiduciary standard.

All solutions must be in the best interests of the client. This however is not a guarantee of performance.

Another example, if someone age 55 to 59 is leaving their company. The adviser should not rollover the 401k to an IRA. Because when in a 401k and unemployed 55- 59 year old can take a withdrawal without the penalty for withdrawal before age 59 ½. If you rollover to an IRA you lose this privilege.

The broker/agent would gladly perform the rollover now, without regard to penalty.

The Department of Labor has recommended a fiduciary standard for everyone dealing with retirement plan assets. This has met with substantial opposition from Wall Street and insurance companies.

The question becomes, why is Wall Street and insurance companies dead set against being held to the fiduciary standard? Shouldn’t/isn’t all financial products recommended be in the best interest of the client? What are they hiding from the consumer?

There are a number of potential answers to this and many other questions. It would require extensive training of all representative. Along with a substantial increase in supervision by the firms. Some products generate substantial fees, though suitable, are not in the best interest of the client.

Many brokerage/insurance firms hire a large amount of people knowing that only a small percentage will succeed in reaching sales goals.

With the fiduciary standard this strategy would put the firms at a high level of liability. They would be required to train and screen much more carefully. This in turn would reduce sales.

Their argument is that with this screening there would be less brokers/agents and less people would be ‘helped’.

I believe that the fiduciary standard would result in the lower quality products being dropped. More attention would be paid to quality rather than quantity.

Unfortunately, our Congress has decided to defund the DOL with regard to establishing the fiduciary standard. Remember Wall Street and the insurance companies have a vested interest in avoiding the fiduciary standard. These groups will pay dearly to prevent a true fiduciary standard.

Regardless, of the outcome, I believe investors should seek out advisers willing to agree in writing, to serve the client based on the fiduciary standard. And not a watered down version.

Your financial future may depend on it.

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