LEGAL ETHICAL

This month my wife and I attempted to purchase a historic building with the plan of moving My Advisor & Planner into it. It was my first endeavor to do this, and fortunately we had assembled an excellent team of advisors to help. We carefully viewed the property, had it appraised, agreed to terms with the seller and we signed both the contract to purchase as well as the escrow agreement. Unfortunately, rather than countersigning the negotiated contract, the seller elected to go to another buyer. We incurred real expense in this exercise, which I am choosing to view as tuition as I certainly got “schooled.”

Was the seller’s action illegal? No, it was not. Was it unethical? I certainly think so, but you’ll need to draw your own conclusion.

This caused me to pause and reflect on the differences between legality and ethics in wealth management. My team’s conviction to transparency, full disclosure and to a fiduciary mindset resonate to our very core. Unfortunately, many of the people who see us learn that their prior financial advisors have not always had the client’s best interest in mind. Although usually the prior work done was legal, we often find the services provided by clients’ past advisors to be unethical and detrimental. Here are just a few examples:

• A senior couple were sold an annuity with a “lifetime withdrawal” benefit. Unfortunately, they had to own the annuity contract for 10 years before this benefit would begin to work for them. They shared that their advisor did not explain that they would be 90 years old before realizing this benefit.

• A couple who are successful professionals with advanced college degrees were convinced to take a significant portion of their net worth to purchase indexed annuities. The couple was convinced by the agent who sold the products that these annuities would mirror a major stock market index. Unfortunately, the insurance company that underwrote this product capped the return at 1%, resulting in the couple feeling “stuck” due to extensive penalties to get out of the product. (More on why our team hates index annuities in a future article.)

• A widow had her trusts managed by a prominent trust bank that claimed to have written the book on being a fiduciary. That trust company then proceeded to invest her significant assets in their own, poorly performing proprietary investment products and would not take time to provide her even an annual review.

• A nonprofit had a nationally known brokerage firm manage their endowment. The financial advisor utilized an investment model managed by the home office of the brokerage firm. Eventually, several highly rated funds in the portfolio were swapped out for new, unproven and unrated proprietary funds of the brokerage firm without advising the nonprofit’s Board of Directors or investment committee. The Board of Directors has a fiduciary responsibility to the nonprofit and was not happy. Space limitations prevent sharing many, many more stories. Although the acts described above were not illegal, our team sure finds them to be unethical. Wealth management services can be complex and complicated and can be challenging to stay on top of for even the most enlightened client. Here are a few suggestions for you to try and protect yourself:

• Work with a fiduciary who does not use proprietary investment products. Although proprietary products can be competitive, the potential conflict of interest is not worth it.

• Demand transparency regarding the financial advisor’s compensation as well as of all the expenses you’ll either directly or indirectly incur.

• Understand the limitations of the financial advisor you are working with. Is your financial advisor making a recommendation to deploy a financial product because it is truly in your best interest or are they doing so because they have limited licenses and can only offer a limited set of solutions?

• Research your financial advisor. At a minimum, look up their history by visiting https://brokercheck. finra.org, https://adviserinfo.sec. gov, and by visiting your state’s department of insurance website. Be especially watchful for any disclosures regarding sales practice violations.

You’ve worked hard to build your net worth. Take the time to thoroughly vet the professionals you are entrusting to oversee your life’s savings.