I keep hearing the term “fiduciary” advisor. What does that mean?
An “advisor” is not necessarily always a fiduciary, but a fiduciary is always required to advise you according to what’s in your best interests. As such, most folks are best served by a financial professional who embraces a fiduciary standard.
The confusion stems over a couple of issues: (1) there’s a double-standard in our laws and regulations, and (2) anyone can call themselves a financial planner, advisor, consultant, wealth manager, etc. without actually providing the advice (in your best interest) that those titles imply.
On the regulatory front, one set of rules is for people who sell financial products, generally investment brokers and insurance company representatives. Technically, they are contractually obligated to place the interests of their employer ahead of your interests. While they can only sell you financial products that regulators consider “suitable,” they may sell you whatever suitable product makes the most money for them or their employer instead of what may be better for you.
The other set of rules is for those who are registered as investment advisors with the federal Securities and Exchange Commission (SEC) or state regulators. These professionals provide investment advice, management, and/or financial planning. As fiduciaries, they are legally obligated to place your interests first and adhere to a high standard of professional competence. Here’s our Fiduciary Oath.
If an “advisor” is not a fiduciary, that doesn’t make them a bad person or automatically mean that they’ll bilk you out of your hard-earned money. Just make sure you know what you need, who you’re dealing with, how they’re regulated and compensated, and look beyond the titles they use.
How are my investments protected from theft?
Most accounts are opened for investment management clients with Scottrade, Inc. as an independent, third-party custodian. Your investments will be held by the attending custodian and your account statements and transaction confirmations will be provided directly to you by them. There is no “Bernie Madoff opportunity for fraud” in this kind of arrangement.
What is your approach to managing investment portfolios?
Large investment losses can be hard to stomach at any age, but they can be devastating in the second half of life. So our top investment priority is managing portfolio risk...but everyone claims that, so what does that actually mean?
While we trade infrequently, we tactically manage your asset allocation, attempting to avoid large capital losses but still capture a reasonable amount of financial upside when market conditions are appropriate. This may involve shifting among stocks and bonds, temporarily increasing cash allocation, trend-following trading, using stop-loss orders to protect the downside, or using options to hedge against losses or potentially capture gains.
Most of the financial industry uses traditional approaches to wealth management, which are based on Modern Portfolio Theory and the Efficient Markets Hypothesis. They assume: (1) risk is defined as fluctuation in the value of your investments, (2) investors are rational, and (3) there is no such thing as an overpriced or underpriced investment.
In our view, those are silly notions that have no basis in reality.
Financial markets will always experience abnormal conditions, government and central bank policies can distort asset prices and cause financial “bubbles,” and investors are always prone to swings of fear and greed. These environments create both opportunities and threats and warrant a nimble, tactical approach to portfolio management.
What about your ongoing contact with clients?
While we find email is very efficient (and use it a lot), ongoing contact can be tailored to your need and the type of service involved. We reach out periodically through the year to clients with whom we have an ongoing retainer relationship…to keep in touch, conduct periodic check-ups and reviews, and answer questions about investments or broader financial issues.
We can meet as frequently as needed to deal with specific financial issues as they arise. And you are always welcome to call or email and expect a prompt response.
Do you work with other professionals?
We maintain a small network of allied professionals who provide legal, tax, mortgage, aging/elder care, and other services, to whom we can refer clients or coordinate services as needed. This is a professional referral network only and we receive no compensation for such referrals. If you already have advisors in these areas, we will be happy to coordinate with them.
How can I check your regulatory background?
It's important to conduct a due diligence review of any financial professional or firm you are considering working with. Regulatory background for SecondHalf and Larry McClanahan may be reviewed at the following links: