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Registered Investment Advisor

Every Imprudent Action Requires a Necessary Lie.

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All of us have said, ‘But it’s different this time’ ….’This Time This Expert is Right for Sure’……’I’m due’…..

A necessary lie is a rationalization to justify self-destructive behavior. Some additional examples:

  • I will start my diet tomorrow…..
    so I will pig out today.
  • I’ll just gamble until I get even…..
    so I will let it ride.
  • This time I really do know what the market is going to do….
    so it’s all right to speculate with my money.

Many of us believe that the ‘experts’ at the large wire house firms like Merrill Lynch, Morgan Stanley, Edward Jones, LPL, or even the large insurance companies can tell them what will happen next in the market. These Wall Street bullies use their large marketing and public relations budgets to convince investors that they have the answers. One only has to look at the 2008 crisis to realize that these bullies do not have the answers.

For example in 2008 some of the well-known and trusted investment firms went bankrupt and some needed the assistance of others to avoid bankruptcy.  These bullies could not even manage their own investments. What chance do you have of succeeding with them?

The capital markets are random and unpredictable. There are thousands of variables that are constantly changing. This moving target makes it nearly impossible to predict the future. If some ‘expert’ does get it right it is a matter of luck and not skill.

Remember if you do not know two numbers you are speculating with your money. They are expected return and expected volatility (risk).

One important question you need to ask when you are deciding which adviser to work with. That is….will you agree to be a fiduciary to me?

Many times I analyze an investor’s portfolio and do not find an investment policy statement. This statement is your roadmap going forward. A fiduciary adviser will have that roadmap and work with you to remain disciplined to that roadmap. It is your blueprint to investment success.

To succeed long term in reaching your financial goals you must own equities….globally diversify….rebalance.

Investors Must Discover Their Advisors’ Conflicts’-of’Interests

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If an adviser will not agree in writing to be a fiduciary to you, run do not walk away. This is saying that their advice is in the brokers’ best interest not yours. These non fiduciary advisers will have a different product for every situation. You will be better served with a prudent portfolio and remain disciplined. There are three simple rules of investing own equities, globally diversify and rebalance.

Different risk and return of investment for th...
Different risk and return of investment for the different investors (Photo credit: Wikipedia)

Conflicts-of-interest between financial advisors and their own clients remains a major problem in the financial services business since it costs investors billions and violates the fiduciary standard, according to author Chuck Epstein.“Conflicts-of-interest are common, especially in the mutual fund industry where fund companies pay investment professionals a fee, called revenue sharing, for recommending their own funds over a competitor’s,” Epstein said.

He added that revenue sharing has been called “the primary source of conflicts-of-interest, which taints professional relationships between investment advisers and their clients.”  As defined by the SEC, revenue sharing occurs when the investment adviser to a fund makes payments to a broker-dealer for expenses it incurs when selling the adviser’s funds.  These payments are made to investment professionals, who sell funds to individuals and 401(k) plan participants. ethics

But in practice, revenue sharing is paid to advisers or 401(k) plans administrators based on how much they sell and how long an investor owns the funds.  Since advisers receive revenue sharing payments regardless of fund performance, it can make it difficult for advisors who take revenue sharing payments to provide objective analysis, Epstein said.

Epstein, the author of “How 401(k) Fees Destroy Wealth and What Investors Can Do To Protect Themselves.” cited that a 2010 Government Accountability Office report found that “if left unchecked, conflicts-of-interest could lead plan sponsors or participants to select investment options with higher fees or mediocre performance, which, while beneficial to the service provider, could amount to a significant reduction in retirement savings over a worker’s career.”

Discover the Benefits of RIAs

One way to minimize or eliminate the dangers of receiving investment advice tainted by conflicts-of-interest is by working with a Registered Investment Advisor (RIA).

According to James Watkins III, JD, Certified Financial Planner®, AWMA® and owner of the blog, CommonSense InvestSense, “RIA firms are fiduciaries by law and, as such, are required by law to always put their clients’ interests first. What many investors do not realize and are not told is that many stockbrokers, insurance agents and other financial advisers are not held to a fiduciary standard, which allows them, some would argue requires them, to put their own financial interests ahead of their clients’ best interests,” Watkins said.

via mutualfundreform.com

The Wall Street bullies need brokers and agents to sell their ‘products’.. Investors need conflict free advice to successfully reach their long term financial goals. Seeking the advice of a fiduciary adviser will help investors reach these goals.

Please comment or call to discuss.

Posted via email from Curated 401k Plan Content

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DOL tells employers when they must fire advisors to 401(k) plans

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Drinker Biddle & Reath LLP
Image via Wikipedia

The new fee disclosure regulations will force plan sponsors to deal with the quality of retirement plan they offer their employees. These new disclosures will help plan participants improve results by reducing expenses. Just a small decrease in expenses will mean a more successful retirement outcome for plan participants.

The final rule regarding this provision is more strict than the earlier versions, says attorney Fred Reish, an attorney with Drinker Biddle & Reath LLP. He points out that the wording in previous versions of the rule was more relaxed stating that employers could fire their advisors.Now, it’s a requirement and the employers must also notify the labor department.

“Before, the statement said that you should consider firing the provider but now they changed it and it’s very clear that it’s mandated that you must fire the provider,” he says.

While the language of the DOL refers to “covered service providers,” Reish says there’s no doubt that “covered service providers” include RIAs as well as providers and other types of advisors.

How big a deal?

While this provision may cause some advisors to worry, top advisors have already been doing this for eons, Alfred says. “The best independent advisors operating in the retirement space have been fully disclosing all of their fees for years. So, this rule is unlikely to even get their attention.”

Rick Meigs: I believe it [this new provision] is not well known to advisors.
Rick Meigs: I believe it [this
new provision] is not well known
to advisors.

But given that many small companies are overwhelmed by day-to-day concerns, giving their 401(k) plan fees more scrutiny will likely be placed on the back-burner, says Phil Chiricotti, president of 401(k) organization the Center for Due Diligence.

He predicts that employers don’t want to be charged with these types of tasks.

“Small-plan sponsors are going to outsource the disclosure work, or work with someone who can do it for them or terminate their plans,” he says. “They are not going to spend every moment on their retirement plans when they can hardly keep their box company, window company or whatever they make open. The burden on small plan sponsors is almost insurmountable.” See: Phil Chiricotti speaks out on broker-sold commissions, RIA fees and heresy.

via riabiz.com

Small business owners should begin to look for outsourcing opportunities with the fiduciary responsibilities mounting. The new fee disclosure regulations are just the beginning. This will only force plan sponsors to offer a better retirement solution to their employees.

Please comment or call to discuss how this affect your company.

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DOL investigations of Retirement Plan Financial Advisors

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Horse And Handler Statue, Department Of Labor
Image by paul_houle via Flickr

This industry is changing because the 401(k) plan has become the sole source of retirement for most Americans. It’s original intent was to be a supplemental retirement vehicle to pension plans. This current 401(k) model must change to look more like the pension fund.

There was a great article written by Fred Reish and his staff regarding Department of Labor (DOL)investigations into broker dealers and registered investment advisors and their relationships with their retirement plan clients. I recommend everyone in the industry to read it.As far as the investigations as to what the DOL called the Consultant/advisor project (CAP), it comes as no surprise. The DOL over the last few years has made it their goal to improve the role of retirement plan advisors whether its requiring them to disclose fees, abide to a fiduciary standard (to be decided), and to finally offer investment advice.

Having been in the business for over 13 years, you see a lot of things that are quite good in the industry and some things that are not so good.  Whether it’s the plan provider who receives extra compensation that is not disclosed by having their client switch 401(k) platforms or those who can get an extra trail for pushing a specific share class of a mutual fund or stable value fund, there are enough abuses with the financial community to warrant these investigations.

via therosenbaumlawfirm.com

The retirement plan business will continue to improve by establishing a clear fiduciary standard and clarity. The retirement plans for employees must give them the best opportunity to successfully retire.

Please comment or call to discuss how this affects your and your organization.

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Survey: Fiduciary Duty Top Reason Investors Choose RIAs

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TD Ameritrade Park
Image by ensign_beedrill via Flickr
Investors minimize conflicts of interest when dealing with advisors held to the fiduciary standard. These advisors are always looking out for the best interest of the client.

The quarterly query of 502 RIAs found that 29% of clients using RIAs said their fiduciary responsibilityto work in the best interest of clients was the No. 1 reason they got their business. More personalized service and a competitive fee structure came in second at 21%, just ahead of dissatisfaction with their current or former full commission broker (19%).“The survey results support what we believe is a long term trend of investors gravitating to the fiduciary model,” Tom Bradley, president of TD Ameritrade Institutional, said in the report. “Investors may increasingly seek the confidence that can come from working with independent RIAs who sit on the same side of the table and are required by law to put their clients’ interests first.”

The telephone survey of 502 RIAs was conducted between Aug. 15 and Aug. 26.

On a more concerning note, the survey found that more than half of advisors said they are “pessimistic” to “very pessimistic” about the outlook on the U.S. economy over the next three months, up from just 18% the previous quarter.

Other findings included:

— Nine in 10 RIAs said their total number of clients has increased or remained steady over the past six months.

–55% of new RIA assets are coming from traditional full-commission firms

–Average revenue and client growth improved 18% and 13%, respectively

— Eight in 10 RIAs said they are “somewhat” or “completely” satisfied with their careers.

via financial-planning.com

The fiduciary standard is the highest in trust.

Please comment or call to discuss.

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