Ever since the 2008 economic crisis, the financial and banking industries have been under more scrutiny by the general public than before. People are coming to terms with the concept that the banks don’t usually have the consumer’s best interest at heart and will find ways of charging fees that they hope go unnoticed. Yet somehow, the financial industry is still managing to blindside us with loop holes and technicalities not made privy to the rest of the population.
So what does this mean to the average worker? It means that when you make an appointment with your financial advisor; don’t assume they will give you the best advice that fits your needs.
The main difference between an investment manager with a fiduciary responsibility and one without one is that a fiduciary is legally required to give you recommendations and advice that best suit your needs regardless of how your investment impacts their commission. In other words, an investment manager who doesn’t have a fiduciary responsibility can suggest you place your money in an investment that could expand their own portfolio and increase their commission, whilst selling you the idea that this is “what is best for your financial future”. They can sometimes even make decisions on behalf of their clients without approval.
Investment managers are sometimes required to sell you an investment plan, even though they know that there are better options out there. Why? Because they have to! Part of their income is the commission they get off of investment plans they sell you, and sometimes selling you a plan that might not be the best fit for you can help them out in their career. They’re not intentionally or maliciously trying to sabotage your 401K, but rather have their own professional career as their main priority.
Moral of the story? Don’t take financial advice at face value and make sure to find out if the person providing this information doesn’t gain anything by giving you the wrong advice!
Image credit: http://www.lglanfield.ca
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