Ep. 179 – Why You Should Use a Fiduciary

Should you work with a fiduciary, and what does it mean to be a fiduciary? A financial advisor working under the fiduciary premise is bound by certifications and licenses to make transactions in the client’s best interest.

In this episode of the Secure Your Retirement podcast, we explain the importance of working with a fiduciary to manage your retirement investment. Listen in to learn the difference between a broker and a fiduciary, plus the factors that bind a fiduciary to act in the client’s best interest.

In this episode, find out:

• The difference between suitability and fiduciary standards.
• The certifications and licenses that bind an advisor to become a fiduciary.
• Understanding what it means to be a fiduciary – doing what is best for the client.
• The factors we consider when evaluating investments that best suit our clients.
• Why you should ask your financial advisor upfront if they’re bound to the fiduciary standard.

Tweetable Quotes:

• “There are certain licenses and certifications that bind an advisor to become a fiduciary.”– Radon Stancil
• “As a fiduciary, our responsibility is not just to look at one question; it’s also to look at everything surrounding that question in a very holistic manner to help you make the best decision for yourself.” – Murs Tariq

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Radon Stancil:	Welcome everyone to this week’s podcast. We are going to be talking today about being a fiduciary. Should you look for a fiduciary? Is that important? What should you consider? If you’re not a fiduciary, what are you? We’re going to talk through this particular issue. We actually talked about this. We had an episode back in March of 2021, episode number 60, where we talked about this. We just felt it’s so important though, and we get so many questions around it. The question that a lot of people ask is, are you a fiduciary? So that begs the question, what does that even mean? And if you’re not a fiduciary, what are you? So I think what we could do is just start off here and we’re just going to talk through the different options. So, Murs, would you want to walk us through maybe if you’re not a fiduciary, what does that mean?
Murs Tariq:	Yeah. I think with how the markets are today, with how volatility is today, everyone’s got questions for their advisors and everyone’s always reevaluating, am I with the right person? That starts to bring up the conversation of what is a fiduciary? Am I working with one? Should I be working with one? To understand that, I think we need to go back and talk about this idea of suitability. There’s a lot of advisors that work in that type of landscape of suitability and not fiduciary. And in particular, if you work with someone that is an insurance agent or a broker, they’re going to work under the premise of suitability. So an insurance agent has the ability to sell you insurance products like life insurance, like annuities, all different types of insurance products. Broker can make transactions for you. A lot of times, these types of transactions are commissionable.
	The person makes a sale to the client and then they receive a commission, whether it’s upfront or over time or at the back end of things, but they receive a commission for the transaction. That’s where people start to ask questions. That commission, was it for the benefit of the advisor or was the product that was sold actually for the benefit of the client? That’s always a topic of conversation and always makes you wonder, was that really for me or is it for the advisor’s business? So that’s what suitability really is. In the insurance world, in the financial landscape, oftentimes we have to be able to prove that the product or the transaction being made is somewhat beneficial to the client that is receiving the transaction. And then in the fiduciary world, and we’ll talk about that, it has to be in the client’s best interest, not just somewhat beneficial.
	So suitability, it could be a product that is sold by a life insurance agent that could be just fine for the client. It could be a life insurance policy that the client really needs. But is it the best one that the client really needs? We don’t know. Maybe not, but it’s suitable enough to pass regulations, suitable enough to get the job done, but is it going to get the best job done? So I’ll give you an example. Say you’re working with an insurance agent and the insurance agent works with a company and all they can do is sell that company’s products, that company’s insurance products. So they don’t have access to anything else out there except for what the company offers. That’s where the conversation starts to come up as well, if this is all you got, we’ve got to make it work somehow in some fashion to make it work for the client.
	So there’s a limited access when you work with an agent or a broker that is affiliated with a direct company and they can only sell that company’s products. But if it’s suitable enough, then that’s where that term suitability comes in. Does it get the job done good enough versus is this in the best interest of our client?
	That’s where we go into fiduciary. Fiduciary, you’ll see the headlines, you’ll see articles all the time, what is a fiduciary? Should you be working with one? Most people will say, “Yes, you should be working with one. And it all comes down to the best interests of the client.” Radon, you want to get us started on that?
Radon Stancil:	Yeah. So basically if you say, “Are you a fiduciary?” That’s important to note. I remember I have an advisor that I heard that he said, “I always treat my clients as a fiduciary,” but he was not a fiduciary. So that’s not a bad thing for him to say. He says, “I treat them as a fiduciary.” He just was not bound to the fiduciary standard. There are certain licenses and certifications that bind a person, bind an advisor to becoming a fiduciary. One of those certifications is a certified financial planner. As a certified financial planner, you have to vow that you will be a fiduciary to your client. Even more than that though, is licensing. In the world of licensing, if you’re licensed as a registered investment advisor, you are bound by law through that license to treat your clients as a fiduciary. So you have to act as a fiduciary.
	Well, what does it mean? Well, let me just give you a little bit of a thought process around this and then we’ll do a little back and forth on how we do this. So a fiduciary says, “Whenever we provide advice to you regarding your retirement account, your individual account, doesn’t matter, that we are fiduciaries.” And this is what that means. One, we meet a professional standard of care when making investment recommendations. It means we give you prudent advice. Now, how do we do that? We’re going to talk a little bit about that in a moment. We never put our financial interests, our interest ahead of the client’s interest when we make recommendations. We avoid misleading statements about conflicts of interest, fees and investments. And then we follow policies and procedures designed to ensure that we give advice that is in your best interest. And then we charge no more than is reasonable for our services. That’s how we have to act.
	Now, you might think, well then what’s the difference between that and suitability? Well, let’s just think that through for a second. Let’s go back to what Murs talked about in this idea of I’ve got a person who needs a product. It’s something that would fit their situation. Now let’s say they need something that’s going to provide lifetime income. That would be an insurance based product. Well as a fiduciary, our goal then is to say, “Okay, we’ve got a client who needs this.” Now we go out and we basically look at all the options and we say, “Which one is the best for the client,” regardless of what that is going to pay, how it’s going to pay any of those terms. We just go out and have to do the research and find it.
	And then we bring it back and we’re basically walking the client through usually two to five different options. So they go, “This is the two to five that are the best. Let’s talk through how these products work, and then which one actually fits you the best.” So I’m not bringing to them, here’s a solution. It’s like, here are multiple solutions. Let’s walk it through to talk about the pros and cons because we say everything has a pro and con.
	Well, the other side of this is on the managed money side. So let’s go now to investments. A broker could say, “I’m going to sell you a mutual fund.” And in that mutual fund, again, it could pay a commission or a fee to the advisor. In our world, we get no commissions on any of those things. Our client pays us a fee that is fully disclosed. They know what it is. If we buy and sell those investments, if we buy another ETF, another mutual fund, another stock, there are no brokerage commissions in there. So what are we looking for? Let’s just talk about this for a second, Murs. Let’s just go down the path that we have determined that a client has, let’s say, a certain risk tolerance that puts them into a growth portfolio. We are going to now go out and buy, and I’m just using this as an example, we want to buy a large cap value fund. In the world of that, how do we go pick that ETF? What do we do to do that?
Murs Tariq:	So, we’re going to evaluate all of them out there. We have a way of tracking thousands of ETFs from a lot of different metrics. In our scenario, we’re not tied. While we do custody funds at Charles Schwab, we’re not tied to Charles Schwab by any means, by saying that, “Hey, we have to use only Charles Schwab funds.” We have the entire world of the investment universe that is available to us. So we go and we drill down and we say, “What are the metrics that we’re looking at when it comes to buying this large cap value ETF?” A lot of times we’re looking at performance, how it’s done. We’re also looking at, because we’re not just buying it for that one client, we’re buying it in a large block and we’re buying millions of dollars at a time, we want to make sure that there is plenty of volume available in the scenario that we need to get out of that in investment.
	We’re also looking at the expense ratios. How expensive as it is to be in the ETF, all investments are going to have some type of internal expense ratio, and those costs have been coming down, but they’re still there. So we want to evaluate that as well. And then we put them all together and we’re looking at each one of those on charts, we’re looking at them on lists, based on different metrics. And from there, that’s how we make a decision. So the key point here is that we’re not working with any individual company that says, “Hey, if you use our product, we’re going to give you a little bit of a bonus on top of it.” We’re not using that. We’re just evaluating independently and saying, “What’s going to serve our purpose the best for this transaction?”
Radon Stancil:	All right. So what we’re not trying to tell you is that a person who works on suitability is going to necessarily take advantage of you. What we do believe, and we are, full disclosure, fiduciaries, so obviously we believe in the fiduciary standard. We believe that it makes sense. I personally would rather work with somebody who is required to put my interests ahead of their own and not work under the suitability standard. That’s for you to make that decision. So what we would say is, if you’re trying to look at an advisor, maybe you’re with an advisor, you’re looking at moving advisors, if you are concerned about that, just simply ask the question, are you a fiduciary?
	Be careful on the play on words. If the person says, “I treat all of my clients as a fiduciary,” say, “Great. Are you bound to the fiduciary standard?” Ask that question. That’s what you want to know, and we would encourage you to do that right up front. Many people ask us that right up front. Are we fiduciaries? That’s important, and a lot of people are reading about that right now, and I just wanted you to make sure you understood the why. Because I think that’s going to help you to understand the importance of that question and the importance of the answer to that question. Oh, go ahead.
Murs Tariq:	Yeah. I think also realize that there are no quick answers when it comes to financial planning. The way that we approach answering any questions, it always comes back to the retirement financial plan that we have created for our clients, or we want to create for somebody that we are talking to. I’ll give you a quick example. This morning I had a phone call with someone that was looking at our services and everything that we do, but he really just wanted a quick answer on Social Security. And while I am very knowledgeable, Radon is very knowledgeable on Social Security and how it works, he wanted to know right away, should I take it at 62, 66 or 70? And I said, “Hey, we’re just getting to know each other. I don’t know anything about your scenario. In order to help you make this decision, whether or not we work together, I’ve got to get some pieces of information.” Because as a fiduciary, our responsibility is not just to look at the one question, it’s also to look at everything surrounding that question in a very holistic manner to help you make the best decision for yourself.
	There are no simple answers when it comes to financial planning. Some of these take some time, some of these take some analysis and they’re not direct to the point. So we’ve got to look at all the different knobs that get turned when we make one decision. So I just put that out there. As you’re talking to people and understanding how they operate, it’s a big deal that someone knows the entire picture before they make a recommendation.
Radon Stancil:	All right. We hope this has been helpful. If you listen to this and you’d like to read about it, we have a blog written on this as well that just went onto the website. So go check that out. You go to the website, which is pomwealth.net, go to the blog page. If you’re listening to this and you go, “Man, I’d love to have some questions answered. I’d love to hop on a quick call,” go to the website, top right hand corner. You can click on schedule call. Our calendar will come right up. You can schedule a call. It’s a no obligation, complimentary phone call. We’ll answer any questions that you might have. We’d love to be able to get a chance to talk to you. We hope you’ve enjoyed the show. We’ve enjoyed being able to talk to you. We’ll talk to you again next Monday.