You have been work­ing hard.  Sav­ing, invest­ing, and dream­ing of some­day retir­ing and enjoy­ing the fruits of your labor.  Whether you feel you have done well, or are maybe feel­ing embar­rass­ment for being under pre­pared, you take the step to go see a finan­cial advi­sor for a check up.  Per­haps like your last vis­it to the doc­tor for a phys­i­cal, a bit of ner­vous­ness hits as you dri­ve to meet your poten­tial advisor.

Regard­less of how many finan­cial advi­sors you have inter­viewed, there is one impor­tant ques­tion they should have all been asked.  “Do you act as my fidu­cia­ry, or is it just your job to find suit­able investments?”

What is suitability?

A con­do­mini­um might be suit­able for your fam­i­ly of 4, but a house with a yard for the kids might be best.  A red sports car might also be suit­able to get from point A to point B, but a mini­van might be best.

If you are inter­view­ing or work­ing with some­one whose firm is not a Reg­is­tered Invest­ment Advi­sor (RIA), then most like­ly they will make invest­ment choic­es based on suit­abil­i­ty.  They will look at your income and your age and present invest­ment deci­sions for you based upon that infor­ma­tion.  Often these advi­sors work for a Broker/Dealer which pro­motes cer­tain prod­ucts and they earn their liv­ing from com­mis­sions made on the prod­ucts they sell.

An annu­ity with a 4% com­mis­sion fee to the advi­sor might be suit­able for you.  A mutu­al fund with a 5.25% upfront load might be suit­able for you.  Com­mon stock in an alco­hol, weapon, or tobac­co com­pa­ny might be suit­able for you.  While suit­abil­i­ty is not in ques­tion in these sit­u­a­tions, whether they are “best” for you may very well be.  These deci­sions can be made based on a chart.  You may find that they may not be best for you finan­cial­ly or ethically.

What is a fiduciary?

As men­tioned ear­li­er an advi­sor work­ing with an RIA fol­lows a dif­fer­ent method­ol­o­gy for select­ing invest­ment options for you.  They are legal­ly bound to make invest­ment selec­tions based on who you are, not what you are rel­a­tive to some rubric.   To facil­i­tate this approach they charge a fee for their ser­vices.  Often for mon­ey man­age­ment this fee may be a per­cent­age of the assets you place under their man­age­ment.  They do not earn a com­mis­sion by trad­ing your account or sell­ing prod­ucts like annu­ities.  Like­wise, you can des­ig­nate areas where they can or can­not invest your dol­lars.  If you indi­cate you do not want your mon­ey direct­ly invest­ed in weapons man­u­fac­tur­ers, they can­not do so.  It is not what is best for you.  You may choose your own con­scious­ness over an invest­ment with high­er return poten­tial.  That fidu­cia­ry can illus­trate what the trade off may be if you are unsure.

Many fidu­cia­ries work on a dis­cre­tionary basis, mean­ing that once you estab­lish your invest­ment cri­te­ria and goals they won’t call you to sell a prod­uct and they won’t call you when mak­ing changes to your invest­ment port­fo­lio.  They know what is right for you and can act quick­ly and accord­ing­ly if the invest­ment hori­zon so dic­tates.  If you are out of town on vaca­tion and the fidu­cia­ry feels an imme­di­ate change is in your best inter­est, they can make that change and not wait a week for your approval.

Who is best for you?

Ulti­mate­ly the deci­sion to work with a fidu­cia­ry may or may not be impor­tant to you.  It is impor­tant to under­stand that a fidu­cia­ry func­tions with a much high­er stan­dard of care than an advi­sor pre­sent­ing choic­es based on suit­abil­i­ty.  They will spend more time deter­min­ing if an invest­ment strat­e­gy is appro­pri­ate to meet high­er edu­ca­tion, retire­ment, or estate goals than find­ing the cur­rent “hot stock” on the market.

Very often a fidu­cia­ry, will rec­om­mend you go through a finan­cial plan­ning process so that they can pru­dent­ly deter­mine which invest­ments will meet your goals both today and tomor­row.  They may change a fee for this plan, as it does entail con­sid­er­able work to ensure with cer­tain­ty they can pro­vide what is best for you.  You may find that through this process many ques­tions about you as an indi­vid­ual or fam­i­ly are asked, and not just those rel­a­tive to your bal­ance sheet.  A plan might deter­mine that a com­mis­sion prod­uct like an annu­ity or insur­ance is actu­al­ly best for you, and they can work with your exist­ing insur­ance advi­sor or sug­gest oth­ers whom can pro­vide that cru­cial piece.  At times that may mean few­er dol­lars avail­able for the fidu­cia­ry to man­age, but what is best for you is paramount.

As some­one who has tak­en the bold step to choose an advi­sor, it is impor­tant to know how they do busi­ness and how they will rep­re­sent you.  Loca­tion, per­son­al­i­ty, and refer­rals may all be a deter­min­ing fac­tor in whom you choose to work it, but the ques­tion of suit­abil­i­ty vs. fidu­cia­ry should also be giv­en your consideration.

Mack­ey Advi­sors™ is a reg­is­tered invest­ment advi­sor with a fidu­cia­ry stan­dard.  We have cho­sen this mod­el because we feel that it is the best way to serve our clients.  As a wealth advo­cate we empow­er clients to make con­scious choic­es, not reac­tive deci­sions.  In fair­ness, our mod­el may not be for you, how­ev­er we encour­age every­one to explore their options thor­ough­ly and make the deci­sion of whom to work with in confidence.