Orlando, FL -- (ReleaseWire) -- 04/04/2014 -- Beth Banker, a successful businesswoman, has been having ongoing neck and back issues. She turns to the Internet for information about self-treatment. After researching the matter, she realizes that her condition, although appearing musculoskeletal in nature, may involve underlying pathologies.
Although her original intent was to heal herself, she became concerned and stressed about the amount of research and data that existed — and which she didn’t understand. Beth discovered that while she wanted to help herself, her condition warranted a consultation with a knowledgeable professional.
Consider the case of Dr. Hands Healer, whose practice is becoming more profitable. He now is able to save some extra money each month. He decides to research the myriad financial products available and educates himself on ways to invest. His inquiries quickly turn into an avalanche of emails from research sites and offers of financial help.
Like Beth, Dr. Healer quickly became disenchanted and overwhelmed by the amount of information available, information he didn’t fully understand. Although highly educated and motivated to save and invest, he soon realized he was beyond his expertise and level of financial understanding.
The need to consult with a knowledgeable professional about the intricacies of financial assets should not be underestimated. Consumers have access to nearly infinite amounts of research material, pundit opinion, and advertisements touting “sure-win” financial windfalls, without much discussion of risks and bad outcomes.
Patients like Beth have good intentions when seeking to help them- selves with simple, uncomplicated health matters. It is conceivable that instituting some lifestyle changes and strengthening exercises would alleviate her symptoms, but would it get to the underlying cause of her condition?
The downside is that if self-care fails to help, valuable time may be lost. Ultimately, who does a patient select to consult? The professional chosen should have the patient’s interest in the forefront of all decisions made and have taken a fiduciary oath: “A fiduciary duty is the duty to look out for the interests of a third party, even if they conflict with your own interests. It is fundamental to the physician-patient relationship.”1 In other words, “Doctor, do no harm!”
Beth decides to visit Dr. Healer, who performs a consultation and examination. He records her subjective complaints and his objective findings. He orders diagnostic tests as needed to confirm or rule out a diagnosis. He makes recommendations for Beth and initiates her course of treatment.
And, Dr. Healer is careful to maintain open and transparent communications so Beth can ask questions and understand her expected outcomes. The needs of the patient are met and the doctor fulfills the fiduciary responsibility.
Dr. Healer, after becoming disillusioned, disenchanted, and disgusted with the inordinate amount of financial rhetoric decides to contact a certified financial planner (CFP).2
Dr. Healer’s research also alerted him to watch for fiduciary versus suitability standards, as they are different.
Eighty-five percent of investors who use an investment adviser have not heard of or don’t understand the difference between a fiduciary standard and a suitability standard.3
CFPs are fiduciaries and held to a high compliance standard. In contrast with CFPs are brokers and the agents who work for them. Their responsibility to act on behalf of a client is limited to the suitability standard. Although advisers and brokers often perform the same functions, advisers are subject to a strict fiduciary standard to act in their clients’ best interest, while brokers are subject to a less rigorous standard to merely ensure that their recommendations are suitable for customers.4
Similar to a patient filling out the requisite office forms, most CFPs use client-supplied information to develop an investment policy statement (IPS). The IPS becomes a roadmap that the adviser and client use as the asset portfolio is established and monitored.
Similar to the patient reexamination and update report, the CFP’s client should receive a quarterly statement showing the return on investments as compared to the benchmark of their asset class holdings and the overall portfolio return, less any agreed-to fees.
The adviser does not hold the client’s assets, but carries out the instructions of the client as agreed to in the IPS. The adviser places the needs of the client before his or her own, as opposed to selling a product that appears to be suitable for the client. An adviser owes a fiduciary duty to avoid, or at least to disclose, material conflicts of interest.5
Piecemeal financial planning, as might be performed by a broker or agent, may appear prudent at the time of client purchase, but may well fall short of the client’s financial expectations and needs. When recommending securities, a broker-dealer owes a duty of suit- ability, which aims to ensure that an investment recommendation or strategy is suitable for a particular individual at a particular time.6
The financial goals stipulated in the IPS, and ongoing dialogue with the adviser, create a full picture of what the client needs to reach his or her goals, versus the piecemeal approach to financial investing. After the initial consultation (examination), implementation and follow-through are maintained and monitored when working closely with a CFP. An investment adviser (i.e., a CFP), engages primarily in portfolio selection, asset allocation, portfolio management, selecting and monitoring other advisers, and financial planning.7
Successful planning involves the ability to crawl, walk, run, and finally reach the finish line. It takes client fortitude and discipline to stay the course while the market rises and falls. It makes good sense to work with a CFP who understands the overall range of financial products and how market conditions can potentially change outcomes, or require a shift in direction to minimize risk and maximize returns.
When Beth selected Dr. Healer, she ensured her healthcare needs were put first. Accordingly, Dr. Healer should consider working with a fiduciary adviser to ensure his portfolio is carefully monitored with his needs placed first. There are no guarantees in life, health, or finance, but minimizing the risks by working with a fiduciary allows you to remain confident your interests will be served first and protected.
H. William Wolfson, DC, FICC, is the director of professional services at American Financial Advisors Inc. (AFA), in Orlando, Fla. He is a registered representative with Foothill Securities Inc., member FINRA/ SIPC, and a registered investment advisor representative with AFA. He remains active in chiropractic by serving as the New York Delegate to the American Chiropractic Association and on various committees. He can be reached at Hwwolfson@AFAdvisors.com.
1Richards EP. “Fiduciary Duty.” The Law, Science & Public Health Law Site. http://biotech.law.lsu. edu/cases/fid-duty. Accessed Feb. 15, 2014.
2Certified Financial Planner Board of Standards, Inc. http://www.cfp.net. Accessed Feb. 15, 2014.
3Observer Stats & Facts. “Investors Confused About Fiduciary/Suitability Difference…” Journal of Financial Planning. 2011;24(8):12.
4Laby, Arthur B. “Selling Advice and Creating Expectations: Why Brokers Should Be Fiduciaries” Washington Law Review 2012;87(3):707.