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Who’s watching out for your interests,
as an investor? If a car maker produces faulty brakes or a toy turns
out to be a choking hazard, there are government agencies and
commissions to protect the consumer. But when investors need
justice, where do they turn? The answer may surprise you.
There is recourse for investors who have been subject to outright
fraud. What about investors who lose much of their life’s savings
because of their advisor’s inaction? Here’s a true-life example.
‘Bob’ retires in 2000 and entrusts an advisor with his $750,000
retirement nest egg. The advisor assures Bob that he will watch and
take action when needed. Three years later, Bob’s account is only
worth $350,000 because his advisor failed to act. What recourse does
Bob have?
It used to be that investors could turn to the courts. Not any more.
In 1987, the Supreme Court ruled that investors can be required to
waive their right to sue in court in order to open a brokerage
account. Many of the arbitration judges are industry insiders and
even though 55% of the rulings have been in favor of investors, the
awards are usually just a fraction of the actual loss. No wonder
Wall Street firms prefer arbitration!
Not all advisors operate under the same oversight or standards.
Stockbrokers are federally regulated by the SEC and NASD while
insurance agents are regulated by their state insurance commission.
When it comes to making investment recommendations, both of these
advisors operate under the ‘suitability standard’. This basically
means that advice they offer has to be suitable for the investor.
Unfortunately, this definition is a very broad one, and as long as
they get you to sign the right paperwork, it doesn’t matter if the
investment is really suitable for you or not. They’re off the hook.
Bob (like all investors) signed paperwork not realizing that he was
virtually relieving the advisor of any responsibility for his
actions.
Registered Investment Advisors (like myself) are regulated by the
SEC or the states depending on how much money they manage.
Regardless, we operate under a much higher standard, called
‘fiduciary responsibility’. We are legally bound to do what is in
your best interest, even if it’s not in our own. There is a move to
make all financial advisors subject to the fiduciary standard, but
Wall Street firms are fighting it tooth and nail.
Here is what you must do to protect your money. First and foremost,
choose an advisor with fiduciary responsibility. If an advisor gets
paid by commission or the investment is an insurance based product,
that advisor is NOT held to the fiduciary standard.
Second, don’t ever rush to make an investment decision. No matter
what your advisor may tell you, there’s NO need to make a decision
that day. That’s just a sales tactic to pressure you to act before
you change your mind or go choose another advisor!
Don’t feel pressured even when you have a deadline such as rolling
over a retirement account. You can temporarily park your funds in an
IRA money market account and take your time making the decision
that’s best for you.
Third, NEVER sign anything you haven’t read and understood. Forcing
nervous investors to quickly sign confusing paperwork is what gets
advisors off the hook for their actions. Take your unsigned
paperwork with you and read it carefully. Take it to someone who has
nothing to gain, such as an attorney or a Certified Financial
Planner you pay by the hour. If you’re investing your life’s
savings, isn’t it worth taking the time and small expense to make
sure you’re doing the right thing?
The bottom line? Investor beware. The responsibility of looking out
for your interests lies on your shoulders. If you’d like a little
help with that job, send me an email. But always be skeptical. Do
your own research.
I’m happy to help as I can. Email me at jeff@guardingyourwealth.com.
I’m in the enviable position of not having to garner new clients and
I’d be glad to give you my unbiased opinion.
Read answers to questions other readers have asked on the Q&A page
at www.guardingyourwealth.com.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie serves clients
nationwide using a proprietary money management system he's
personally developed.
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