Loyal to the Client - Fiduciary Responsibility

Many people have heard the word "fiduciary" but don't know what it means or how it can affect them personally. In the context of financial planning, a fiduciary is an advisor who puts their clients interests ahead of their personal interests. It is a legal or ethical relationship of confidence or trust regarding the management of money and the advisor must not profit from his fiduciary position unless authorized by the client. A fiduciary is expected to be extremely loyal to the client and must make clients aware of any and all conflicts of interest.

Peterson Wealth Advisory is a Registered Investment Advisor (RIA). All RIAs have a fiduciary duty their clients. RIAs are regulated by the Securities and Exchange Commision (SEC) or by the states in which the advisor is located. Brokers, Registered Reps, Stockbrokers, etc. are self-regulated by the Financial Industry Regulatory Authority (FINRA).

Brokers have been blurring the lines between themselves and RIAs for a number of years. One way has been through fee based accounts. RIAs are compensated strictly on a Fee-Only basis. The client pays the advisor directly for hours of service or a flat percentage of the assets under management. Broker fee-based accounts charge a percentage fee of the assets managed and the advisor can receive monies from the products they sell. They can get 2% kick backs on structured notes and revenue sharing from mutual fund and insurance companies.

In fact, as of July 22, 2005, any brokerage firm that offers fee-based accounts must prominently disclose the following, among other things:

• “Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours.

• We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits and our salespersons’ compensation may vary by product and over time.”

Be aware of the differences between a RIA and a broker. The RIA is loyal, works on your behalf and their compensation is clear and understandable. On the other hand a broker can sell products first and worry about their suitability for you second.

10 No-No's Between You & A Financial Advisor

NO-NO #1: NEVER WRITE A CHECK MADE PAYABLE TO YOUR ADVISOR, OTHER THAN FOR THEIR FEE.

When investing money, your checks should only be made out to brokerage firms, the custodian, or insurance companies.No legitimate advisor would ever allow a client to write a check for investments or insurance payable to them personally or his firm.

NO-NO #2: NEVER ALLOW YOUR ADVISOR TO LIST THEMSELVES AS A JOINT OWNER, BENEFICIARY, OR TRUSTEE ON YOUR ACCOUNTS.

This money is yours, not your advisor's. There is no legal or procedural reason why the advisor should be listed.

NO-NO #3: NEVER LEND MONEY TO YOUR ADVISOR.


There are rules and regulations against loans to an advisor. Also, you don't want to complicate the relationship.

NO-NO #4: NEVER LET YOUR ADVISOR SIGN YOUR NAME TO ANY DOCUMENT.


Many transactions and documents require your signature. If you need to transfer money or need to submit another form you might be tempted to bend the rules. Don't. Forgery is a felony.

NO-NO #5: NEVER LET YOUR ADVISOR ALLOW YOU TO SIGN A BLANK FORM OR CONTRACT.

It is a violation of securities regulation rules and not a smart thing to do. You need to know what your putting your signature on at all times.

For privacy considerations, it is common for an advisor to send documents that omit account numbers and social security numbers. It's fine to sign such forms. Your advisor will fill in the missing information after you return the forms. This step is designed to reduce the risk of identity theft.

NO-NO #6: NEVER LET YOUR ADVISOR LIST THEIR FIRM’S ADDRESS TO RECEIVE ACCOUNT CORRESPONDENCE.


You should receive monthly or quarterly statements and tax documents directly from the custodian, brokerage firm, or insurance company. Never let your advisor arrange for the statements to go to his office instead of you.

NO-NO #7: NEVER LET YOUR BROKER OR ADVISOR SELL YOU AN INVESTMENT THAT ISN’T AVAILABLE FROM OTHERS.


Some advisors sell in-house or proprietary investment products. There's only one reason they do that and that's because they earn higher compensation for doing so. All investments your advisor recommends should be available from numerous sources.

NO-NO #8: NEVER LET YOUR ADVISOR RECEIVE A SHARE OF YOUR PROFITS.


The advisor isn't going to reimburse you for losses so, why should they share in your profits.

It's your money so you should keep all of it.

NO-NO #9: NEVER LET YOUR ADVISOR ASSIGN ANY AGREEMENT WITH YOU TO ANOTHER ADVISOR.


At some point, your advisor will retire or sell their practice. When it happens you are relieved of any and all contractual obligations you may have had with him or her. You are not obligated to work with their successor or their firm. This is also a violation of security law.

NO-NO #10: NEVER LET YOUR ADVISOR INVEST YOUR MONEY IN SOMETHING YOU DON’T UNDERSTAND OR OVERLY COMPLEX.

If you don’t understand an investment or a strategy, don’t invest in it. Investments that are complex, with numerous layers are generally high risk and can have big losses. These types of investments were a big problem for institutions and individuals in 2008.

Long Term Care Quick Facts

• Life expectancy at birth is now age 78

• People in the fastest growing age group in this country are those over 85

• If you and your spouse both reach age 65, one of you can be expected to live to age 90

• 90% of all the people in world history who ever reached age 90 are alive today

• More than half the women and about one-third of the men who reach age 65 will spend some time in a nursing home

• Seven out of 10 couples can expect at least one partner to use a nursing home after age 65

• The average cost of a nursing home is about $73,000 per year

• Half of all older Americans who live alone will spend themselves into poverty after only 13 weeks in a nursing home

• 56% of couples spend their income down to the poverty level after one spouse has spent six months in a nursing home

• Two out of five people 65 and over will need long-term care. Half will stay in a facility six months or less, while the other half will stay an average of two and a half years.