The Day Has Finally Arrived! Fiduciary Rule is Here: An Open Letter to Consumers

The first phase of the Department of Labor’s “Fiduciary Rule” goes into effect today. This topic has been in the news a lot lately, so you probably have some idea that your financial advisor should be a fiduciary. The author of this Forbes article thinks that regardless of the rule’s legal future, consumers will hold their financial advisors to it, and I agree. You have been enlightened, and now I hope you will accept nothing less than your best interests as top priority. You already demand this level of care from your doctor and accountant so when your life savings are at stake, you should absolutely expect the same standard of care and ethical duty.

But what does it mean exactly, to be a fiduciary? And what does it mean for you if yours isn’t?

Essentially, a fiduciary is an financial advisor who is required by law to act in the best interests of the client. But there’s more to being a fiduciary than meets the eye. It’s not just a label you can slap on.  Only one kind of financial advisor – one who acts exclusively as a Registered Investment Advisor or “RIA” – is required to act as a fiduciary at all times. That little three letter word “all” is really important.

It is possible, and increasingly popular, for financial advisors to be dually registered, meaning sometimes they wear a fiduciary hat to provide investment advice while at other times not; getting commissions through an affiliated broker-dealer on other investments. So the question to be asking is not, “Are you a fiduciary?” but rather “Are you required to act as a fiduciary at all times?” 

These dually registered advisors are blurring the distinction between broker and advisor, which can be confusing to investors. Other key differences between these two approaches include the following:

 
Fiduciary vs. broker image
 

The fiduciary standard goes beyond the traditional requirement that broker-dealers “reasonably believe” the recommended investments to be “suitable” for the client, based upon their needs, objectives and circumstances. The broker’s duty also remains to the broker-dealer by whom she is employed, not necessarily to the client. To make matters worse, many of these broker-dealers are publicly traded companies which means their duty remains to the shareholders. The fiduciary standard requires RIAs to maintain a “duty of loyalty and care” to their clients, which means the advisor is required to be on your side, regardless of whether it makes her, or her employer, more money.

The essential difference between the suitability and fiduciary models is their primary focus: a product vs. client orientation. The licensing requirements for these two professions back this up. A broker is trained and licensed primarily to be a salesperson and has a Series 7 license to sell a product. An RIA, however, maintains a Series 65 license to provide investment advice

I can hear you protesting as I type these words - “But my Financial Advisor is a great guy!” or “We’ve been with XYZ Brokerage forever… of course they’re looking out for us!” I am not saying your Financial Advisor isn’t a great guy, or that you haven’t had good service from your brokerage. But the bottom line is that under the fiduciary standard, an advisor working with an RIA would be prohibited from putting your money in an investment from which she would receive a higher fee because it would cost *you* more money. The great guy at your brokerage would not, as long as that was one of many investments deemed suitable for your situation. In fact, a broker might even be incentivized to invest you in his brokerage’s products because he earns a higher commission on them, regardless of whether they are the best choice for you.

Another byproduct of the sales or transactional orientation of most brokers is that once the sale is completed and they’ve received their commission, you may not hear much from them. We often hear people say they “feel like a number” or don’t hear from their financial advisor regularly which makes sense when you think about it - if they’ve already received their compensation and are not bound by a fiduciary duty to keep working in your best interests, why would they call more than they need to? Unless you’re an investor with a lot of assets, it is not cost effective for them to spend time on you. This is often true for many RIAs, as well, because they tend to be paid a fixed percentage of the invested amount. This is why many investment management firms have minimum account sizes that exclude less profitable clients.

Which brings us to another problem in the scope of advisor compensation: in a compensation structure where everyone is moving to fee-only, and those fees are required to be “reasonable,” who is the arbiter of reasonableness? If everyone is charging around the industry average of 1.00% - 1.25% of assets under management – and we may see that increase as advisors seek to make up for lost commissions – investors don’t have many better options. So even fiduciary RIAs and dually registered brokers can legally meet the definition of fiduciary, but still charge what we believe are excessive investment management fees. And in the end, you, the client still pay a steep price.

At Action Point, we do things differently. We are all fiduciaries, all the time. That means we serve your best interests above our own. That means a transparent, and much lower than industry average fee structure with no commissions on investments, ever. We believe that talk is cheap. So this is our way of adding real value (plus we can sleep at night which is an added bonus.)

We don’t believe in minimums either. We currently help investors that range in size from just getting started to tens of millions. If you’ve got a little to invest, we want to steer you in the right direction. If you’ve got a lot, we want to help you avoid expensive mistakes. We want to help you enjoy your life and save responsibly for the future.                                                                                                                 

TV interview talking about the Fed's decision to raise interest rates. (Time to watch - 3:22)

(to view the 3:22 video, click the image or link below)

Yesterday Ben VerWys, Action Point CEO & Senior Financial Advisor stopped by the studio to chat with anchor Brian Sterling about the Federal Reserve's decision to raise the interest rate by a quarter percent.  The important takeaways of note are:

1) Borrower costs will rise.  Many of the major banks have already announced increases to their prime lending rates.

2) Investors need to take a hard look at their investment portfolios, including 401(k)s and IRAs to determine what the impact of the Fed's announcement may be.  As Ben mentions in the video, it is important to recognize that the impact of this isolated rate increase may be minimal today, however poorly positioned portfolios may be impacted for years to come as the Federal Reserve pursues their long term agenda. 

If you have questions about how the interest rate increase may affect you or whether your investments are well positioned going forward, please CONTACT US today.

Original video link: http://woodtv.com/2015/12/16/fed-hikes-rates-for-first-time-in-7-years/

Every Day is Veteran's Day

Each year, on November 11th, I attend a Veteran's Day assembly at my daughter's school that honors veterans of all generations. It's a point of pride for the kids to be connected with a relative or family friend that participates in the assembly so I make it a point each year to attend. And honestly, the feeling that I get when I can see that my daughter is truly proud of me is not something I want to miss.

Action Point is a veteran owned business and I've often thought that we have unique advantages and perspective because of this. It's interesting though because the hiring world seems to be very polarized when it comes to hiring veterans. I personally can credit much of my career success thus far to the opportunities that were opened up to me because of my military service. However for every one of me, I can find an article or research evidence that shows when push comes to shove, many companies do not look to ex-military members for high level expertise.

We are proud to be veteran owned and our desire would be that our clients and potential clients are more inclined to hire us because of this than less.  Being former military in no way undermines our ability to provide helpful financial planning techniques or hinders our ability to identify compelling investment opportunities.

Here's a quote for you to ponder:  

"Heroism in battle is first and foremost the acceptance of fear and the decision to act appropriately in spite of it."

At first read, that may seem like it's talking about former war heroes or veterans and it certainly is applicable in a military way.  However you may be surprised to learn that is a direct quote from financial educator Nick Murray, addressing the task at hand for my firm; to help people navigate to and achieve financial success. As CEO of Action Point, I became a Financial Advisor to help people like you become a hero to yourself and your family. Together, we can help each other be heroes, starting by getting laser focused on achieving your long-term financial success.  To have a conversation about, contact me via our Contact Us page.  And remember, veterans are veterans every day.

Lastly, for my military friends, check out The Veteran Mafia, a great perspective post from Patriot Boot Camp addressing why each of us veterans has a unique opportunity post service.

Warm regards,

Ben VerWys - Senior Financial Advisor

Action Point Co-Founder and Advisor admitted to prestigious national registry of Financial Advisors

When you hear us talk about truly putting our client's best interests first and advising clients the right way, we want you to know it's not just cheap talk.  Aside from believing in completely transparent relationships, aside from being anti-commissions, aside from dropping the licenses that allow us to charge commissions, one of Action Point's Founding Partners and Senior Financial Advisor, Ben VerWys has been admitted to the Paladin Registry.  According to Jack Waymire, Founder of The Paladin Registry and author of Who's Watching Your Money?, Paladin, is "the only online service that vets and rates the quality of financial planners and advisors. We ask the right questions so investors don't have to. And we know the critical differences between good answers (benefit investors) and bad ones (damage investors)."

Paladin uses an objective research process to determine who is profiled in the Registry. Advisors must be willing to practice full transparency. They cannot withhold information that may cause investors to reject them. Next, they must complete Paladin’s rigorous due diligence process that focuses on their expertise and ethics. And lastly, they must also score in the 90th percentile or higher when Paladin’s proprietary algorithm rates the quality of their credentials, ethics, business practices, and services.

A (picture) Post That Proves Capitalism Is Alive & Well

A (picture) Post That Proves Capitalism Is Alive & Well

In case you weren't sure, what you are seeing is a converted (old) miniature school bus painted white and modified to accommodate 10-12 brewery hopping patrons at a time.  The yellow box in the below image highlights the somewhat difficult to see rental rate for this transportation... $800/day. 

So here's the point.  This is not the first time I have seen this "Runner" around. Not only is this a decent sign that that economy is alive and well, that regular bar patrons can afford $800 to hire this for their Thursday night out, but it is one of many proof positives that we all see every day that Capitalism is alive and well. 

Why do we care about that at Action Point and why do we want you to care?

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It's The Little Things...

Research shows that the happiest people take the time to appreciate the little things in life.

Stop and think about what your future will look like… if you work harder, save more, take more investment risk, defer other lifestyle goals, there’s no doubt you’ll have a more comfortable future.

But at what cost to you?  To your family?

We would like to suggest an alternative . . .

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