Bucks County Herald

Is your financial advisor really a fiduciary?


An area of much confusion to investment clients is whether their advisor is “working in their best interest.” This seems logical to most, but the facts are otherwise.

The Securities and Exchange Commission (SEC) describes a person who is working within these guidelines as a “fiduciary.” Attorneys must always work under this mantle, doctors generally do, but with financial advisors it’s “let’s make a deal.”

When I wrote an article in this publication a short time ago titled “Beware the Free Lunch Seminar,” I received positive responses from many who understood the deceptive marketing practices behind these seminars, used primarily to sell high commission annuities. I only received one negative response, published in this publication from Michael Neft, who mistakenly claimed I didn’t know the difference between a variable and an index annuity. In fact, he thought it was amusing.

When I was writing my financial column for The Times of Trenton for 15 years, I often wrote about life insurance and annuities since these are legitimate products of the insurance industry and are an integral part of the Certified Financial Planner financial planning process. As a journalist, the only time I received a negative response was when I was critical about some aspect of these product offerings – you guessed it – from commissioned insurance agents.

I am not implying that a person selling commissioned products can’t act as a fiduciary, i.e. in the clients’ best interest, but under that arrangement, it may difficult to do. There is an old industry joke that states, “I needed to fix my kitchen so I sold a client an annuity.” Not so funny if you were the client. At 7 percent commission, a $500,000 annuity sale would net the broker $35,000 – for about two hours work.

The U.S. Department of Labor currently has the financial services industry up in arms over its 2016 memorandum that states advisors must be acting as fiduciaries when offering advice to clients on qualified pension plans, including IRA accounts. Although this regulation has been delayed until mid-2019, many brokerage houses are trying how best to deal with this complexity for their businesses. Many are turning away from commission products in lieu of fee-based structures.

Annuity proposals often exceed 60 pages in length. Yes, the high annual expenses for index and variable annuities are contained within the expansive legalize, up to 4 percent depending upon the riders (expensive optional benefits) selected. More factual information about the actual returns of index annuities can be researched on the web from famous celebrity coach Tony Robbins (“Money, Master the Game”) and the independent advisory firm Fisher Investments (Flaws of Indexed Annuities - Don’t Believe The Hype) whose research indicates the return on index annuities is no better than 10-year U.S. Treasury bonds, about 2.3 percent over a 20-year period (1994-2014).

By comparison, a Registered Investment Advisor with the SEC must provide a disclosure statement, form ADV 2, where the annual investment management fee is clearly outlined in a very readable format. This still doesn’t ensure a fiduciary relationship. A no commission, fee-only advisory structure may provide such an arrangement. Unfortunately, for a prospective client, it is still caveat emptor, “let the buyer beware,” as I describe on my PBS appearance: “Behind the Scenes with James Earl Jones”; available on my georgenluciani.com website.

George N. Luciani is president of Covered Bridge Advisors, Yardley. He can be reached at gluciani@CBridgeAdvisors.com



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