Every night I hear Bill O’Reilly say on his show, “The O’Reilly Factor,” that he is looking out for you, the folks.
Every night I also think, “Is he really? Is he looking out for me?” More importantly, do I want him looking out for me? Ultimately, the answer to all of the above questions is no, he is not looking out for me and no, I don’t want him looking out for me.
I can look out for myself just fine, thank you very much, but I do rely on people I trust to take care of things for me in a manner that I require.
The manner in which I require my things to be taken care of is classified as a fiduciary manner.
Having things taken care of in a fiduciary manner means that the person who is helping me must act in the best interest of me, personally, not a generic person like me. A fiduciary must know who I am and what I need and want in order to provide the best service for me.
Most financial advisers out there do not operate from a fiduciary standard. That is not to say they are dishonest, most aren’t, but they operate legally from a suitability standard.
They belong to an association that has a code of ethics that says they will put the best interests of their client ahead of their own, but it is not a legal requirement.
As a Registered Investment Advisor (RIA) who is under the watchful eye of the Securities and Exchange Commission (SE C), I am required to operate under a fiduciary standard in all of my dealings with clients.
The analogy I use most frequently is that of a builder. Let’s say I build houses for a living and you commission me to build you a home and I say, “OK. I will go build you a house and I’ll call you when it’s completed. It will be up to code and it will keep you warm in the winter and dry when it rains. In other words, it will be suitable for you to live in. Actually, it will be suitable for virtually anyone to live in.”
Or you could hire me to build you a house and I would say, “OK, let’s sit down and draw out a set of blueprints. We will make the rooms the size you want, put doorways where you want and add custom features that you need or want. The house will not only be up to code and suitable to live in but it will also be the best home for you and your needs. I, as a builder, in this case will act as a fiduciary to you in building a home that best fits your needs.”
Which house would you rather have? Your financial house is no different.
The portfolio needs to be custom built for your needs and desires, not invested in the “flavor of the week.”
Just like building a house, it takes some time to draw up the blueprints and make the changes you want. Also, the plans need to be flexible enough to change quickly should circumstances or your needs change. The “buy and hold” strategy is dead and is being replaced with the “buy and manage” strategy.
Is your adviser legally serving as a fiduciary for you? Most are not. It iscritical that each and every one of your advisers act as a fiduciary on your behalf.
CPAs and attorneys are legally required to acts in your best interest, your investment adviser should also. You have a choice, and the choice is easily made with a simple question, “Are you considered a fiduciary when acting on my behalf with my portfolio?”
Gary L. Rathbun is the president and CEO of Private Wealth Consultants, LTD.
