There’s a contention in the marketplace that fee only, non commission financial advisers have eliminated the conflict of interest they were subject to by taking a flat fee approach to assets and financial planning as well as billable hours for specific work required outside their normal fee schedule. For the most part this is the closest mindset to client centric asset management currently offered for investors. But keep in mind that some commission products can perform better than their fee-based counterparts, so it’s important to shop the market for the best deal.
Putting the client first seems so elementary, almost adolescent in nature for a steward of someone else’s finances. There are rules that govern the client engagement practices and its compensation. But the department of Labor introduced new legislation that would tighten definitions and the rules of engagement to steer the industry towards a more client centric environment and subsequently weed out financial advisers and insurance agents who are not properly licensed or lack oversight. The industry feels the regulation is too heavy handed and consumers are unaware of its impact.
There will always be bad financial advisers and insurance agents, who cause the government to enact laws to protect the consumer. And while the intentions of the law may be good, the results can hurt honest practitioners and create advise that is not in the best interest of the client. Most financial professionals are in good standing with their state’s insurance and/or security regulators. And good fiduciaries play by the book with best practices in mind and their client interests at the forefront of their thinking. Good advisers are product agnostic and are unaffected by compensation. They are true stewards of their client’s finances.
In addition to the required paperwork involved with the purchase of securities and insurance products, a new level of best practices includes a client engagement letter outlining the expectations of the financial professional and the prospective client. It spells out the expectations of both parties with scheduled performance reviews and accountability that can include remedies for nonperformance. Every client should require good references, clean regulatory resumes and a personality fit for their financial professional, so both can experience the relationship benefits.