The Awful Consequences of Non-Fiduciary Advice

I asked financial planning professionals if they had any stories about the harm caused by predatory recommendations from sales agents posing as advisors.  The stories they tell are shocking.

The still-mostly-in-limbo Department of Labor rule that would require anybody providing certain kinds of financial advice to act in the best interests of their customers and clients has received an amazing amount of push-back from certain corners of the industry.  Even though the so-called “fiduciary” requirement is limited in scope (applying only to advice related to qualified plans and IRA accounts), and contains a number of exceptions (the Best Interest Contract Exemption, where brokers can get unsuspecting customers to sign approval for sales loads), the large brokerage firms and independent broker-dealers have howled that it would be a terrible onerous burden to have to treat their customers the way they would their own grandmother.

The independent broker-dealers, who have been a reliable sales conduit for what may be the worst investment idea ever invented (high-commission non-traded REITs) have lobbied (directly and through their Financial Services Institute trade organization) that forcing them to either give up commissions or otherwise not incent their representatives with sales loads and other variable payments would reduce “choice.”  They’ve said that without being able to pocket commissions, they would have to renounce giving advice to less-wealthy customers.  Think of it as a hostage threat: if you force us to treat our customers fairly, then we’ll have to abandon a big chunk of your voters.

The wirehouses—the Merrills and Smith Barneys and UBSs of the world—have taken a different tack.  They’ve argued that despite all those smarmy advertisements about helping people achieve their dreams, their advisory representatives should legally be considered as nothing more than sales agents.  SIFMA, the trade organization whose membership includes all the largest brokerage firms, advanced the argument in District Court that the DOL rule should not apply to brokerage employees because a fiduciary standard “only applies where a heightened relationship of trust and confidence exists,” and this is most definitely not the case with brokers.  Why?  Elsewhere in the filings, SIFMA makes clear that its representatives are sales agents in disguise and should be treated as such when any laws are applied.  “It has long been the law… that a difference exists between sales activity and fiduciary activity—which occurs only under certain circumstances arising out of a special relationship marked by trust and confidence between the parties.”

Any consumer, reading this filing, is being told in clear and simple language not to put trust and confidence in the “advice” provided by a representative of one of the brokerage firms SIFMA is representing—which means, basically, all the brokerage firms.

But perhaps the biggest question surrounding a fiduciary “put your clients’ interests first when you give advice” standard is: what kind of advice are clients liable to get if their best interests are NOT put first?  What’s the worst case scenario here?  What bad things might happen to a customer’s ability to retire when brokers and sales agents posing as advisors make recommendations that are in their own interests—to maximize their sales commissions or sell in-house products in order to win that incentive trip to Tahiti?

Nobody is in a better position to assess the damage inflicted by self-interested recommendations than fiduciary advisors.  Why?  Because they often inherit client situations that had previously been managed by brokers and sales agents.  More than anyone else, they have to clean up the damage.

Recently, I asked my Inside Information readers—who overwhelmingly support the fiduciary standard—to tell me if they’ve ever observed this kind of damage—and if so, would they please describe it for me.  The results were eye-opening.

For instance, consider the pre-retiree client inherited by an advisor in Charleston, WV, who had plenty of money saved up in tax-defrerred TIAA (teacher’s retirement) accounts which would provide more-than-sufficient income whenever she decides to retire.  Unfortunately, her broker talked her into putting $300,000 of her IRA assets into a high-commission variable annuity with a lifetime income rider that will guarantee income (that the client doesn’t need) in case the market goes down.

“She’s paying north of 3.7% a year for a useless lifetime benefit and a 4-year surrender schedule,” says the advisor—the surrender schedule being a period when commissions are owed by the client if the contract is cashed in, basically forcing the client to keep the contract in place or pay hefty surrender penalties.  Worse, the agent also talked the client into taking early annual distributions from the TIAA retirement account—$30,000 a year, which is then “reinvested” in the variable annuity product.  Money is being distributed out of a tax-deferred account, taxes are being paid unnecessarily, then the proceeds are re-contributed to a much more expensive tax-deferred annuity, with the agent receiving a nice fat sales commission on each transfer.  And, of course, each contribution extends the surrender period on the annuity, which is up to seven years now.

What did the advisor recommend to this victim of financial abuse?  The most important issue, he found, is that when the client will have to take mandatory distributions from the TIAA account at age 70 1/2, the client is projected to be in a high tax bracket and a considerable part of her income will be lost to taxes.  While he’s waiting for the surrender penalties to end so the variable annuity can be converted to a much less expensive annuity contract (Vanguard’s fees are 0.50% a year), he’s helping the client make annual Roth IRA conversions, which will reduce the tax impact of the client’s mandatory distributions down the road.

In fact, quite a few annuity-related horror stories were shared in this research effort.  Randy Brunson of Centurion Advisory Group in Duluth, GA, sat down with 50-year old professional clients, husband and wife, who had been sold two variable annuities, one with annual expenses of 2.75%, the other with expenses of 3.5% a year.  The first still has surrender penalties, but Brunson immediately exchanged the other, tax-free, for an annuity with total yearly expenses of 0.30%—saving the clients $3,000 a year in various costs that they didn’t realize they were paying.  The other contract will be similarly exchanged next year.

Another advisor who was clearly not operating under a fiduciary standard recommended that a 30-year-old resident doctor, unmarried and loaded with student loan debt, buy a $1.5 million permanent life insurance policy with premiums amounting to $32,000 a year.  “There was no discussion about debt, the potential to make 401(k) investments or creating an emergency fund, and he told me he had no desire to provide life insurance proceeds to his brother when he died,” says Sharlee Cretors, of SC Financial Services in Scottsdale, AZ, who inherited the mess as the doctor’s new financial advisor.

This is one of the few stories with a happy ending.  “We were able to unwind the insurance product, enroll him in his 401(k) plan for maximum deferral, build up his emergency fund, and his student loans are being paid down,” says Cretors.  Is it not easy to see the difference between fiduciary “best interests” advice and the advice provided by agents who aren’t bound by the fiduciary standard?

Cretors has another example, a 94-year-old mother of a client who was living in a care facility that costs $9,000 a month.  Her husband had just died, and she had just received the proceeds of a $250,000 life insurance policy.  The daughter asked Cretors to look into her finances and answer a simple question: was this enough to enable the mother to afford to continue living in the facility for the rest of her expected lifespan?

Looking into the mother’s financial situation, Cretors discovered that right after the death of the husband, a broker who the husband had been working with had swooped in, took the $250,000 and invested it in a tax-deferred variable annuity—with a nice commission, of course—turning the liquid assets into illiquid assets and adding a heap of fees on top of them.  Cretors thought this was outrageous, but the mother didn’t want to “make trouble” for her father’s “friend,” so she just paid the surrender penalties and plans to live on what’s left.  Today, three years later, the mother’s resources are nearly exhausted.

Spencer Hall, of Retirement Planning Services in Knoxville, TN, sat down with his 80-year-old clients for an annual review meeting, and they told him about their new whole life insurance policies—one with a $2,500 death benefit, the other with a $9,000 death benefit, sold to them by a particularly resourceful commission-based life insurance agent. 

“These folks have no debt, good pensions and Social Security benefits, plus more than $500,000 of liquid investments in IRAs and after-tax investments,” says Hall. “They have no need for these policies, which cost $600 a year for him and $1,500 a year for her.”  If the agent had been required to make recommendations under a fiduciary standard, would he have been allowed to make this sale?

Kathleen Campbell, of Campbell Financial Partners in Fort Myers, FL, wrote to say that she has hundreds of stories of clients who had previously been fleeced by agents and brokers who achieved sales that were clearly far more in their own best interests than the interests of their clients.  She shared two. 

The first involved a single female client in her late 60s, no children, who had come to Campbell’s office after working with a “very nice” female insurance rep who, she was told, “works with women.”  “This client was making $70,000 a year at her job, but had only saved $80,000 towards her retirement,” says Campbell.  The insurance rep solved her financial dilemma by selling her a high-commission whole life insurance policy with a $140,000 death benefit at a premium cost of $7,140 a year.

“It’s a completely useless policy,” says Campbell, “since there was absolutely NOBODY who needed that insurance payout.  The $7,000 per year could have been put to much better use being added to the client’s 401(k) plan or just being invested for retirement.”  The client had no idea that the “very nice” rep was a sales agent, rather than a fiduciary advisor, and eventually surrendered the policy and cut her losses.  With a few years of Campbell’s advice, the female client is now retired, with no debt and a $300,000 account that is growing in a very conservative asset allocation.

Campbell’s second horror tale involves a widow in her 70s whose husband died in a tragic car accident that she survived.  “She was in the hospital for several weeks,” Campbell says, “and just two weeks after she returned home, a “financial advisor” who had sold annuities to both this lady and her husband’s IRAs came calling.  Since she was the spousal beneficiary,” she continues, “she had an option to roll over the full value of the husband’s annuity into hers.  Instead, the “advisor” sold her a new annuity for that money, with of course a new surrender schedule and a new commission bonus for him.”

This was so outrageous that Campbell helped the client write letters to the annuity company, requesting that they rescind the new annuity and roll over the husband’s annuity proceeds into hers.  “To the company’s credit,” Campbell says, “they did so without argument.”

There seems to be a theme where insurance sales agents who have no fiduciary obligation will pose as “friends” when they give advice.  Patricia Raskob, of Raskob Kambourian Financial Advisors in Tucson, AZ, tells the story of a woman who owned eight annuity contracts, and her “friend” was trying to sell her a ninth.  The woman asked Raskob for a second opinion—and the opinion was that she already had eight too many.  Another client came to the firm having been sold ten different cash value life insurance policies, and the friendly agent was trying to sell another one.  “I asked him if he would like to send the agent to our office to discuss why this was appropriate,” says Raskob.  “Of course, the agent would not come in, and we helped him cancel the un-needed policies.”

Raskob also had a local attorney refer a new widow to her, and when she looked over the widow’s financial situation, she discovered that a commission-based “advisor” had visited the husband on his deathbed and convinced him to sign his life savings into annuities, and also move the IRA holdings into them as well.  “Fortunately, due to their haste, we discovered that the transfers were incorrect, and the accounts were titled incorrectly,” says Raskob.  “It took quite a lot of discovery to straighten things out.”

If there’s no extra money in a customer’s portfolio to convert into commissions, nonfiduciary insurance agents will get creative about finding alternative sources of funding.  Neal Merbaum, of Rocktree Financial Advisors in Boston, MA, met with a client a few months before he turned 70, who wanted a portfolio review.  Merbaum was horrified at what he found.

“An insurance agent had talked him into taking his Social Security benefits at age 66, while he was still employed (with high income),” says Merbaum, “so he could put the after-tax amounts into a couple of equity-indexed annuities,” which are our candidate for the second-worst investment idea ever created (tied with indexed universal life)—except, of course, for the agent, who pockets hefty commissions for basically recommending an indecipherable product that is pretty much always inferior to a simple mutual fund portfolio even before the ginormous fees are taken into account. 

“This not only cost him a lot of unnecessary tax on his Social Security benefits,” Merbaum adds, “but he lost the 8%-per-year increase to his benefits that he would have received had he held off taking them until age 70.”  He adds that the payments that the annuity would begin making when the client reached age 70 would be nowhere near the difference between what the client will receive from Social Security at age 70 and what he would have received if he had waited to collect. 

There was no way to turn back the clock on the Social Security decision, so Merbaum is recommending that the client take as much out of each annuity as he can each year without incurring a penalty.  It will take a couple of years, given the contractual restrictions.

Being a fiduciary means that you have an obligation not only to give recommendations in the best interests of the client, but also to make sure the recommendations perform as advertised—while the sales agents often simply sell the policies and move on to the next sale.  Jim Eastman, of PFO Wealth Services in Naples, FL, met with an 85-year-old client who had been sold $11 million (face amount) worth of cash value life insurance policies.  “His health had been deteriorating, and he was nervous about the policies, and asked us to look into them,” says Eastman.

The meeting was fortunate.  There had been a serious decline in the dividend crediting rate since 2008 on the policies, and nearly all of them were seriously underfunded and in danger of lapsing within six months.  “We recommended combining policies through a series of tax-free 1035 exchanges,” says Eastman. Once the policies were converted to thrifty no-commission contracts, Eastman was able to extend the projected lapse dates by 10 years, with no increase in premiums.  “Had we not done a timely review and proposed some changes,” says Eastman, “the client’s family would have lost more than half of his death benefits and wasted millions of dollars in the premiums he had paid into the policies over decades.”

Where was the agent who had originally sold the policies?  Trying to sell the client a new policy—which was when he decided to seek impartial advice.

Selling annuities to the elderly is great business for sales agents posing as advisors, if they can get away with it and look at themselves in the mirror the next morning.  Carolyn McClanahan, of Life Planning Partners in Jacksonville, FL, tells the story of a client’s grandmother, age 82, who walked away from a visit from a friendly agent with four deferred annuity contracts with 10 years of surrender charges and no rights to early withdrawal.  “The return was 1% annually,” McClanahan says, “and this was all of her money.” 

McClanahan write a letter to the carrier explaining the situation, and the insurance carrier promptly refunded all the money.

Another of McClanahan’s clients had met with an “advisor” who purported to offer “college planning.”  The clever college planning strategy was to put all her free cash into an expensive whole life policy and borrow against the policy to pay for college, as a way to report less cash on hand on the financial aid forms.

The problem?  “The client didn’t need more life insurance, made way too much money to get financial aid anyway, and her child was a senior in high school!” says McClanahan.  Wow.

Casey Bear, of Cranbrook Wealth Management in Troy, MI, says that he often runs into situations where a client has been sold inappropriate cash value life insurance products, and when he tries to convince the client to cash them in, the agents will find out about it and meet with the client to object.

“I’ve run the numbers on policies sold to kids to pay for college,” he says, “and if they had just put those premium dollars into a 529 plan, they would have funded a huge portion of their college education instead of having a $50,000 death benefit.”  Meanwhile, the gains come out of the life insurance policy as ordinary income, while the 529 proceeds are tax-deferred, and come out tax-free if the money is used to pay for higher education.

So Bear makes the obvious recommendation, and the agents will say, ‘Look, you paid all of those loads and commissions up-front, and now this ‘investment’ is really going to start singing.’  “And,” Bear says, “the client will look up and say, ‘wait; you didn’t mention those commissions and loads when you sold me the policy.’

Steven Podnos, of Wealth Care in Cocoa Beach, FL, had a client come in with a four-month old annuity with $20,000 in surrender charges that would have to be paid if the client wanted to get out of the annuity—and the surrender charges wouldn’t go away for another eight years.  The annual fees were just south of 4% a year.  “We paid the surrender, and since the markets had been great, he was able to get out whole and will avoid years of high fees,” says Podnos.  “The client’s life is now insured until retirement with a very adequate amount of term coverage.”

An advisor who prefers to remain anonymous sat down with a prospective client who had been receiving advice from an insurance-based (and definitely nonfiduciary) “advisor,” and discovered that the person sitting across the table owned 23 different index and variable annuities worth over $1 million.  The “advisor” regularly called him to replace old policies, pay the penalties and get new ones—what is known as “churning” in professional circles.  “I told him I wouldn’t be able to help him, and told him to go back to the insurance “advisor” to unwind the mess,” he says.

Podnos offers two other stories.  A prospect came to him for a second opinion on the recommendation of an insurance “advisor” who wanted to sell him an equity-indexed annuity for his entire $1.6 million portfolio.  “When he asked the annuity salesman what the commission was, he was told; ‘I don’t know; I think 1-2%,’” says Podnos.  “We looked it up; it was 10% of the $1.6 million that would go to the agent, not to mention how much the insurance company was going to make on the deal.”

Podnos adds that his wife’s grandmother, suffering from Alzheimer’s, was sold an annuity by a nonfiduciary “advisor” right before she was going in for surgery to have part of her bowel removed.  The contract carried a 10-year surrender penalty—yet somehow this sale was deemed suitable for an 80-year-old Alzheimer’s patient in poor health.  Would it have passed fiduciary muster?

There may be a distinction between fudging the truth and outright lying about the relative advantages of different investment options, and some insurance agents seem to trample that line with spiked boots.  Schulyer Mann, of M Advisory Group in Torrance, CA, says that a younger couple with younger children and a mortgage had been sold two indexed universal life insurance policies.  “The agent had told the wife to stop her contributions to her workplace 401(k) plan because, he said, she would have to pay taxes on those withdrawals in retirement,” says Mann.

Not only did this agent, posing as a friendly advisor, tell the client that the indexed universal life benefits would be tax free (true only at death, not to the client, but to heirs), but to make it look like a terrific deal, the policy illustration assumed that the contract would deliver investment returns, after fees, of 9.58%—far in excess of what the markets have historically delivered.

Mark Smith, a fiduciary advisor who practices in Thousand Oaks, CA, says that it seems like every week he will see an annuity that was clearly sold, by an “advisor,” in order to generate a fat commission check.  “Yesterday,” he says, “I was looking at a client’s equity indexed annuity contract with a 15% surrender charge, with a small decline in charge each year for 15 years,” he says. 

Andrew Tignanelli, of Financial Consulate in Hunt Valley, MD, tells the story of a new client who had been sold a cash value life insurance policy with a death benefit of $500,000.  “It was costing them about $1,900 a year,” he says.  “We had the policy replaced with 20-year term, with a $2 million death benefit, for $1,100 a year.”

Seven years later, the new client died of a sudden heart attack.  “The $2 million death benefit has totally relieved the family of financial issues while they plowed through all the emotional complications,” says Tignanelli.  He adds that the pressures on sales agents leads to the opposite of fiduciary advice.  “An agent who needs to make a living has to place a whole life, universal life, variable life or adjustable life policy to make enough commissions to survive,” he says.  He also sees a fair number of annuity contracts that were misrepresented and complicated to cancel once the commissions have been paid.

Like, for example, the passel of annuities that Charles Ryan found in a new client’s portfolio.  The friendly agent was an equal-opportunity salesperson; he had sold the client an Allianz annuity with internal fees amounting to 3.30% a year; an AXA contract with 3.51% annual fees; a Transamerica annuity with expenses amounting to 4.10% a year, and a Lincoln Financial contract with 3.55% annual costs.  “The same money could be invested at Vanguard for 0.15% a year or $500 annually,” says Ryan. 

The problem?  The contracts still carried, collectively, $19,500 in surrender charges.  Ryan calculated that in two or three years, the difference in fees would more than make up for the cost of paying the surrender charges.

Predatory brokers

The above are examples of the predatory behavior of friendly insurance agents calling themselves advisors.  The damage done by their conflicted advice could be reduced or avoided altogether if everybody posing as an advisor were required (by law and regulation) to put a client’s interests ahead of their own. 

But what about brokers—the representatives of large wirehouse firms that promise, in their TV advertisements, to facilitate better lives for their customers?  Have advisors seen any predatory behavior from prior brokerage relationships that would beneficially be eliminated if the industry were to fall under a fiduciary standard?

The not-unexpected answer is: yes.  Bonnie Sewell, of American Capital Planning in Leesburg, VA, offers the most common example: a portfolio with a lot of load mutual funds that have very high expense ratios.  “A longtime client’s mother died, and left her $1 million and her brother $800,000,” she says.  “Both were approached by the mother’s broker, who asked for the opportunity to continue managing the assets.  I asked for their last account statement, so I can see what kind of job this guy was doing.”

The funds in the two accounts had a collective annual expense ratio slightly above 2.5% a year, and had lost money in an up year for the market.  “My clients’ average fund expenses are 0.31% a year,” says Sewell.  “The mom had been paying a lot for very mediocre returns.”  The new client declined the broker’s offer, Sewell repositioned the assets into thriftier mutual funds, and before long, the brother called Sewell and asked to sign on as a client.

Some brokers trade stocks, and when they feel the need, will create a new “payday” for themselves by recommending that their customer sell the current stocks and buy new ones to replace them.  This is especially effective with naive or uneducated customers, who would be among the biggest beneficiaries of a fiduciary standard.

Tresa Leftenant, of My Financial Design in Bellevue, WA, recalls a client who continued working with her husband’s wirehouse broker after her husband passed away.  The broker would call her several times a year to recommend sells and buys.

“She felt intimidated by the tone and complicated information given during these calls,” says Leftenant, “so she meekly said ‘yes’ and hoped for the best.  She wasn’t aware of any fees and charges, and believed she wasn’t paying anything.”  The recommendations were, needless to say, underperforming the market, and seemed to be in random companies, with no overall portfolio strategy.

Brokers have a much greater and more subtle variety of ways to trap their unsuspecting customers than insurance agents.  Brian Fricke, of Financial Management Concepts in Winter Springs, FL, recalls a 74-year-old widow who had an $800,000 taxable account at UBS that she depended on for monthly income.  “Turns out the account had originally started out at around $1.3 million,” says Fricke.  “The broker had been using a complicated covered call writing strategy in an effort to generate her desired monthly income—apparently without much success.”

It gets much worse.  This widow had also bought a new home for about $475,000.  “Instead of suggesting she pay cash, the broker talked her into getting a mortgage—through a UBS subsidiary,” says Fricke.  “But then he discovered that she couldn’t qualify for a traditional 30-year fixed rate mortgage because she couldn’t provide documentation of consistent, regular monthly income distributions from the investment account”—due, of course, to the broker’s mismanagement.

The solution?  “The UBS broker had her sign up for an asset-backed loan—through a UBS subsidiary, of course—using her brokerage account as collateral.  The interest rate was a floating, not fixed rate.” 

The sad ending?  The investment account continued to decline, and the widow is now getting calls from the lender to pay down the loan, due to the account’s declining value.  When Fricke tried to help, he found that the UBS entity would not allow the widow to transfer the brokerage account to another brokerage firm so he could manage the assets at lower cost and with more effectiveness.

“I wish I could tell you how things played out,” says Fricke, “but this person stopped responding to our requests for a followup meeting.”

“Fee-based” predators

Other advisors provided examples of predatory behavior committed by dually-registered sales agents affiliated with independent broker-dealers, who misleadingly describe themselves as “fee-based” (a sly effort to usurp the “fee-only” compensation model favored by many fiduciary advisors).  If regulators or Congress imposed a fiduciary duty on all who call themselves advisors, then perhaps fewer non-traded REITs would be sold to unsuspecting customers.

In one example, Brunson, the advisor from Duluth, GA, met with long-time family friends, husband age 71, wife 68, who have never had a lot of money, and were retiring on Social Security and a portfolio of less than $200,000.  They had been working with a dually-registered advisor at one of the more prominent independent broker-dealers.

“About than 25% of their portfolio, $48,000 altogether, had been invested in non-traded REITs,” Brunson recalls.  “I was furious.  These are, to use an old phrase, honest, hard-working, God-fearing people, who were invested in garbage.” 

Garbage?  The problem with non-traded REITs is that they’re almost completely illiquid; once you buy them, you’re stuck with them.  Meanwhile, the huge up-front expenses and 10% commissions, disclosed deep in the prospectus, makes them unlikely ever to make money for their investors.  The best offer Brunson could get for the illiquid securities was $15,000.

Ryan, the advisor at Atlantic Financial Planning in Annapolis, MD, did a little better.  A new client came to him after having had his entire portfolio invested in non-traded REITs.  After years of effort, Ryan managed to get buyout offers and sold for a 25% loss.

Should children be invested in illiquid securities?  Dan Danford, of the Family Investment Center in St. Joseph, MO, recalls an 18-year-old with an inherited IRA that was entirely invested in a non-traded REIT.  “The commission [paid to the representative] cost more than the position was worth,” says Danford.  “At the end of the day, he had to pay $135 just to get somebody to take the crappy REIT out of his account.”

Of course, part of the fiduciary “put your clients’ interests first” concept is full disclosures of the fees that are being paid for services rendered.  Not all “advisors” observe these niceties—nor, absent a fiduciary standard, are they required to.

Sean Butson, of DC Capital Management in Dillon, CO, recalls a prospect who had been working with a dually-registered “advisor” who disclosed that he had been charging a 1% fee to manage the prospect’s assets. 

“I discovered that his “advisor” had invested a bunch of his money in a non-traded REIT at a 10% commission,” says Butson.  “Accepting commissions is bad enough, but to do it and also charge the client an asset-based fee is unconscionable, if you ask me.”

A happy ending?  “I literally called the REIT every January for four years,” says Butson.  “They finally did an offering, which allowed a portion of the shares to be sold (at a huge loss) every year for a few years—even though the value on his statement showed up as the amount he had invested, not even minus the 10% commission.  It’s unbelievable,” Butson says, “that something like this is legal.”

The value of fiduciary

Let’s stipulate that there are many good insurance agents, brokers and dually-registered advisors out there, who are doing good work for their customers and clients.  When I hear from them, they tell me that they’re truly acting in the best interests of their customers and clients.

But why, then, would they object to living under a requirement that they do so going forward?

This article doesn’t pretend to give a scientific breakdown of how many apples are good or rotten in any of these industries; its purpose is to illustrate the harm that shouldn’t have to occur to the financial lives of unsuspecting financial consumers.  Based on many more responses than I was able to cover here, and on comments that advisors routinely encounter these situations, it seems abundantly clear that a simple fiduciary standard—a requirement that anyone posing as an advisor should give advice only in the best interests of the recipient of that advice—would prevent a lot of financial harm to a lot of hard-working Americans. 

It would be hard for any of the agents, brokers and dually-registered representatives who made the recommendations described here to argue, in court or before an arbitration panel, that their foremost concern was looking out for the best interests of their customers.

Based on the delays we’re seeing in the (very limited) Department of Labor fiduciary rule, it looks like a fiduciary standard is not in our immediate future.  Fortunately, many advisors have embraced the duty of care and are even willing to provide their clients with a written guarantee that they will act as a fiduciary, in a contract that explains what that means in clear, understandable English.

For now, it is unfortunately up to the consuming public to understand the difference between that friendly “advisor” with a sales agenda, and a true professional advisor who acts in their best interests. 

This is no easy task.  I’m hoping that every advisor reading this will consider posting this article on their firm’s website, with a link on their front page that says something like: “Buyer Beware: Here are some examples of the harm that a non-fiduciary advisor can do to you.” 

It’s the least we can do to help people protect themselves before any more damage is done.

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