Steps Every Boomer Should Take Before Leaving the Workforce

The best advice I can give to boomers is to seek and pay for the advice of an objective professional adviser. A fee only financial advisor will most likely follow the fiduciary standard. In other words an adviser who puts the interest of the client first.

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5. Know the difference between a brokerage firm and an advisory firm.A lot of baby boomers don’t understand the difference between a broker and an advisor. A broker is someone who sells something for a commission,  and sells products like  mutual funds, variable annuities, etc. An advisor provides investment recommendations.

Brokers and brokerage firms don’t have a fiduciary standard to the client, they only have a suitability standard to the client. That means whatever they recommend must be suitable for you, but it doesn’t have to be in your best interest.

On the other side, an advisor has a fiduciary standard to the client. What an advisor recommends to the client has to be in their best interest.

When anyone is preparing to retire they should seek the advice of an adviser following the fiduciary standard. Most people do not understand the difference. By working with a brokerage firm you will have to wonder if there is a conflict of interest.

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Customers Want The Best Advice – Not Only Suitable Advice

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The question must be asked…Why are the financial institutions so adamant about the fiduciary standard? What do they have to hide? Shouldn’t the best interest of the client always be first? What do the financial institutions have to hide? How does the investor know that the investment recommended is in their best interest?

Although most investors falsely assume registered representatives are required to provide advice and recommendations in their best interest, momentum is gaining to turn this myth into fact.Currently advisers are only required to adhere to a suitability standard of care which means they must advise “suitable” investments pertaining to clients’ objectives, income level and age – but not necessarily the best investment for the client.

A fiduciary standard ensures the adviser will advise the best options for the client, and always put the client’s interest before the advisers’.  It also requires investment advisers to provide up-front disclosures about their qualifications, what services they provide, how they are compensated, possible conflicts of interest, and whether they have any record of disciplinary actions against them.

For example, if the broker has a choice of two similar mutual funds for a client’s account, they are currently able to sell the one that’s twice as expensive as the other (often meaning a larger commission for the broker). If a fiduciary standard is implemented, it would require the broker to sell the client the mutual fund sold at the best deal for the client.

The fiduciary standard will help recover the lost trust by the public. It will require financial representatives become more knowledgeable about what they sell to who.

Please comment or call to discuss how this affects you.

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How Is Your Financial Adviser Paid?

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Why should you care how your adviser is paid? Because his/her compensation can impact the choice of the products recommended to you and your return from those products. Moreover, the adviser’s compensation structure can create a conflict of interest between what is best for you the client and what is best for the adviser’s wallet.

While there are many fine financial advisers who receive all or part of their compensation from the sale of financial products, a client can never be fully sure that the adviser’s recommendations are fully made with the client’s best interests at heart. Will the adviser suggest a mutual fund that does not pay a commission even if that fund is the best one for the client?

Fee-only advisers do not have this conflict of interest because they are paid by the client, not the financial product provider. They are free to suggest the best investment vehicles and financial products for each client’s individual situation. Full disclosure: I am a fee-only adviser, and I absolutely feel this is the best compensation method for clients.

When selecting a financial adviser, be sure to understand how he or she will be paid from working with you. Compensation structure should clearly not be the only metric used when choosing an adviser. There are many questions to ask a perspective adviser. Most of all, be sure that the person that you choose to work with is competent and that he or she fully understands your situation, your goals, and your expectations from the relationship.

Conflicts of interest when dealing with a financial adviser can be minimized. Fees and risk level are two thing an investor can control. Working with a fee only adviser can help control both.

Please comment or call to discuss how this affects you and your financial future.

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