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Pitfalls to Avoid for the New Fiduciary Rule

We have spoken many times about the new fiduciary rule the SEC is imposing on the financial advisors of the country.  Many stockbrokers and other non-fiduciary advisors are unhappy about the coming imposition of this standard.  For the record, the fiduciary standard simply requires the advisors and agents to place the clients’ interests first.  See anything wrong with that?

In fact, State Farm recently announced that it will be stripping about 12,000 agents of their ability to sell mutual funds and variable annuities, due to the coming imposition of the fiduciary standard.  State Farm had previously backed away from having agents get their CFP designations, because the CFP Board was requiring their certificants to accept the fiduciary standard.

However, many of us are very happy, because we already adhere to the fiduciary standard, and we believe that it is the only way any client should ever be treated.  See if you agree, using these 10 “no-nos” for fiduciaries.  We have added comments explaining our past and current practices in each of these areas. This list was developed by Nicholas Yeap, and can be found here.  We are commenting on his list, it is not our own.

  • Recommending the Wrong Share Class – This applies to mutual funds, which charge sales commissions several ways.  “A” shares charge “up-front” commissions; “B” shares charge trailing fees (and usually 12-b1 fees); “C” shares charge annual fees.  We never charge sales commissions, as we use only no-load or “load-waived” funds.  Our custodian has ticket charges on some transactions, but they are not shared with us.
  • Favoring Certain Clients by Selling Some Illiquid Investments – Illiquid investments are items such as non-traded REITs, Leasing Programs, etc.  We do not use any non-traded products, which are generally sold by commissioned salespeople.  Please note that “illiquid” is improperly used in this example, and should refer to “unmarketable” securities.  Marketability only refers to the ability to sell quickly, and liquidity implies the additional guarantee that there will be no loss of principal.
  • Recommending Proprietary Products – Many large companies create and sell their own mutual funds, ETFs, annuities, etc.  The salespeople are usually paid a higher commission on these items.  We have no proprietary products, and therefore have no conflicts of interest.
  • Making Sweetheart Deals with Affiliates – Some advisors “deal out” investments to other people or firms.  We do not have any affiliates, and therefore cut no “deals.”
  • Manipulating Valuations to Increase Fees – Every item in every portfolio managed by Van Wie Financial is publically traded and prices are published every night in public sources.  No improper valuations are ever introduced into our systems.
  • Lying about Performance – Many advisors advertise their “results” as representing what happens in their clients’ portfolios, but many are only theoretical portfolios, so the results are invalid.  We never advertise results, as each portfolio held by our firm is uniquely tailored to the individual client, and is kept private.
  • Taking Undisclosed Fees – Some advisors “hide” extra fees within a “wrap fee” program, and fail to disclose certain “extras” that occur within the reported “wrap fee.”  We charge a straight percentage of assets under management, with no added items, visible or otherwise.
  • Over-Billing Clients – Our fees are calculated by our technology services, and we audit every fee for every quarter to assure accuracy.
  • Lying About Strategy – Some advisors claim to have proprietary systems and strategies to outperform the market.  We use the longstanding proven principles of Modern Portfolio Theory to create, monitor, and “tweak” portfolios for performance and risk.
  • Lying About Qualifications – Our qualifications are hanging on our office walls.  Adam has a Mechanical Engineering Degree from Tulane, an MBA from Emory, and is a Certified Financial Planner (CFP®).  Steve has a Math degree and an MBA from the University of Wisconsin, and is also a Certified Financial Planner™.

In our Registered Investment Advisory, operated by CFP® Professionals, the fiduciary standard is imbedded in our Code of Ethics.  None of the ten points above will cause any change in our method of doing business.  If you would care to avoid the possibility that your advisor would violate any of the ten, give us a look.  Initial consultations in our office are free.

Van Wie Financial is fee-only…for a reason.