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| Opportunities & Exposures: Finance |
Valueless Values
Donald Moine
06/01/2005
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Fiduciary Flaw
To exacerbate the problem, most advisors have no fiduciary
duty or other incentive to deliver performance on their clients’ investments,
which frees them to act in their employer’s interest rather than their clients’.
In fact, the large brokerage firms have fought hard to maintain their exemption
from fiduciary duty. But registered investment advisors are fiduciaries, and
must attempt to do what is in their clients’ best interests. Nonetheless, not
even fiduciaries are required to deliver performance. As long as they diversify
assets, they are relatively safe.
The SEC is considering changing regulations
to require all financial advisors to act as fiduciaries. But whatever the SEC
decides, wealthy investors must be on guard against financial planners who
misuse life planning and values-based techniques to sell commission-loaded
financial products.
Do not dismiss all life planners. Legitimate financial
advisors in the life-planning movement charge either an hourly fee or a low fee
(less than 1 percent a year) based on the assets they manage. They primarily use
low-cost index funds or exchange-traded funds—and they never talk about beating
the market. They can now buy indices at a discount and can protect
multimillion-dollar concentrated portfolios at little or no cost. They can also
steer you toward returns of 6 percent tax free, year after year, in AAA-rated
insured investments.
Of course, there is another solution: Find an advisor
who really can deliver performance. Though they are rare, they certainly
exist.
Donald Moine is principal of Wilson Advisory Services, a private wealth
management firm, and a columnist for MorningstarAdvisor.com.
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