Finding the right financial professional for planning one’s golden years requires understanding a few basics—starting with the difference between a fiduciary and non-fiduciary advisor.
CORAL GABLES, Fla. (PRWEB) November 03, 2015
Of the 10,000 Baby Boomers streaming into retirement daily across the U.S., few are prepared to navigate the complex financial services industry, and most will turn to a professional financial planner for retirement advice. Florida-based retirement advisor Michael Ladin of Ladin Tax and Financial Group has announced his mission to help pre-retirees understand a few basics—starting with knowing the difference between a fiduciary and non-fiduciary advisor—when they begin their search for the right financial professional to help plan their golden years.
In the weekly Retirement Radio program he hosts on NewsTalk 610 WIOD,“Strategies for Financial Success,” Ladin educates high net worth and Baby Boomer listeners on the differences between fiduciary and non-fiduciary standards to help them select the best financial advisor for their future retirement needs of creating an income and wealth preservation plan.
Like the Fiduciary duty required of an attorney, a financial fiduciary often has a duty to continually monitor their client’s investments and their changing financial outlook for changing risk tolerance that can happen at any time. Fiduciaries like Ladin approach the first client meeting as only the beginning of the advisor’s continuing obligation.
Since the title “financial advisor” can mean different things, Ladin says it is important to ask questions and discover which standard an advisor follows before hiring him or her.
Currently, only independent registered investment advisors are required to act in a fiduciary capacity—that is, act in the best interest of the client. However, brokers who call themselves financial advisors and work for a broker-dealer firm are not usually held to the same standards, but are held instead to a “suitability” standard, matching products offered by the company for whom they work rather than the client.
While an investment adviser who works for a brokerage firm could be going through the motions of searching for the best financial products for each individual client, often that’s not really what they are doing. Many will just push “house” products onto their clients, products that help the advisor glean higher commissions.
Unfortunately, when it comes to “financial advisors” operating under a suitability standard, such a scenario is not at all uncommon since brokers are generally not legally bound to find the investments or products considered in the best interests of their clients, merely ones that are considered “suitable.”
Although the “suitability” standard does offer some legal protections for investors, it is not the gold standard.
“For that, you need to ensure that your investment adviser has a fiduciary responsibility, so look for a registered investment advisory firm,” Ladin says. “The suitability standard typically requires that whoever is handling your investments chooses investments or insurance products that are suitable for the client’s objectives, but not necessarily at the lowest fees and expenses, or the best available.
“A classic example would be the broker who invests his Baby Boomer client’s money into a proprietary mutual fund or investment offered by his own firm, rather than seeking investments or alternatives from outside sources that may be a better fit or lower in fees and expenses. While a broker who adheres to a suitability standard has to make decisions that are suitable for the client, he could still be making decisions based on the best interests of his firm, whereas a fiduciary must make decisions that put the client’s best interests first,” he says.
In fact in August, the Securities and Exchange Commission issued a warning to brokerages to start doing a better job monitoring the sales of risky complex investments to retail clients, due to abuses.
In an alert issued Aug. 24, 2015, the agency said an analysis of 26,600 transactions totaling $1.25 billion of structured securities products revealed a significant number of instances in which the investments were inappropriate for the purchasers.
Over the past two years, there has been much media focus on the Securities and Exchange Commission’s (SEC) attempts to implement a uniform fiduciary advice standard by which all financial advisors would be subject to abide. If the SEC effort eventually succeeds, the fiduciary standard of registered investment advisors would be extended to broker-dealers, requiring them to also act in the best interest of the investor.
Ladin says that the fiduciary standards followed by registered investment advisors were established 75 years ago as part of the Investment Advisors Act of 1940, which prohibits the fiduciary advisor from making trades based on the potential to earn higher commissions for the advisor or their firm. Fiduciary standards are regulated by the SEC or state securities regulators, and hold advisors to a standard that requires them to put their client's interests above their own.
Ladin also says that the fiduciary advisor must also do all he or she can to make sure that their investment advice is made using accurate and complete information, avoiding any potential conflicts of interest.
However, non-fiduciary broker-dealers, regulated by the Financial Industry Regulatory Authority (FINRA), need only fulfill a suitability obligation, a standard that does not require placing the client’s interests above their own. Although the language contained in the two standards seems to carry similar meanings, the differences between a fiduciary responsibility and a suitability standard are significant.
“Instead of accepting the responsibility to place the client’s interests above his or her own, the broker-dealer operating under a suitability standard must only believe that any recommendations made are suitable to meet their client’s financial needs, objectives and individual circumstances,”
Ladin says. “It all boils down to accountability, and when an individual walks into the office of a registered investment advisor they should feel secure in knowing that by law, the advisor they choose to help plan for the retirement of their dreams is working in their best interest.”
When it comes to selecting a financial advisor, Baby Boomers who know the difference between fiduciary and suitability standards are already operating at an advantage. In addition, an experienced and qualified retirement advisor will offer a customized plan to fit the individual’s needs.
For more information, visit the Ladintax.com website, email Michael@ladinfinancialgroup.com or call (305) 444-4898.
About Michael Ladin and Ladin Tax and Financial Group:
Ladin Tax and Financial Group, a registered investment advisory firm, focuses on assisting Florida Business owners, Baby Boomers and retirees with sound retirement income strategies that work in a tax efficient way. Founder and CEO Michael Ladin is experienced in asset protection, wealth transfers, estate planning life Insurance and premium financing and is registered in Florida as an Investment Advisor Representative.
The host of Retirement Radio’s “Strategies for Financial Success” on NewsTalk 610 WIOD, Ladin co-authored the best-selling book, “The Ultimate Success Guide,” with Brian Tracy. He has been quoted in major publications, such as the Wall Street Journal and USA Today.
Since beginning his career in the financial services and insurance business more than 20 years ago, Ladin has built a reputation as a respected public speaker and consultant. Ladin is a financial professional experienced in the most pressing issues facing today’s retirees.