Making Cents: Are you working with a fiduciary?
By: John P. Napolitano, CFP®, CPA, PFS, MST
For the past two years, we’ve heard the word Fiduciary used frequently. In short, a Fiduciary is one who acts on behalf of another with the obligation of good faith and trust. Naturally, most people with an advisor generally think that their personal financial counselors(s) are fiduciaries and act in their best interests. Unfortunately, as the person often in the seat of evaluating the work of others, I can say that this isn’t always the case.
There are some who feel that if an advisor earns a commission for the placement of investment or insurance products, that they’re summarily dismissed as not being fiduciary worthy. In many cases, after reviewing of the actions and the options of the previous advisor, that judgment may be true. However, declaring a broad statement that commission based advisors can’t be fiduciaries is equally inaccurate.
Knowing how to evaluate if your team of advisors acts in a fiduciary capacity may be more worthwhile than summary judgment. To that end, do you feel that your advisors always recommends his firms products or services only? For example, if your advisor is an agent of the NWX insurance company, and all of your insurance recommendations are based on products offered by such company, your antenna should go up. In fact, I witnessed such a situation in 2018 where two business owners had stacks of life policies, all from the same company.
After further review of the business owners overall financial situation, about 15 significant gaps that a competent financial planner should discover were glaringly unaddressed. When the agent was called in for the annual review, he once again tried to sell a whole life policy for one of the partner’s newborn, without even a word about the other important needs for both families.
Of course, it is possible that the NWX insurance company has the best products in the world, but if your advisor doesn’t show you alternatives from other companies or address the other glaring gaps in your financial life, then you may need to seek them out for yourself.
Another test of the fiduciary worthiness of your advisor(s) is their willingness to disclose compensation to you. In the world of commission based advisors, the laws permit an answer such as ‘industry standard commission’ as adequate disclosure to alert you that your advisors has a vested interest in the advice rendered. But in the fiduciary world, your advisors would need to disclose the nature, frequency and amount of such compensation – a far higher standard that could turn your head.
This same standard also applies to investment brokers. If your broker claims that they don’t charge you anything and only get paid when they do something, look closer. Know how much you pay in average annual commissions and ask yourself what services you’re getting for that. If its investment only, leaving significant gaps in the other important areas of your financial life, maybe it’s time to assess your options.
John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.