When you buy something, you want to know what you are buying. Or you should know what you are getting.
When you want to buy some packaged ice cream, you make a series of decisions.
- You may decide you want to go for taste, not low calories.
- So you purchase some Haagen-Dazs, Ben & Jerry’s, or your favorite local brand of ice cream. You may have had them in the past and know they will satisfy your craving for ice cream.
- You can decide how much you want to eat. The package provides you with the calorie and fat content, so even though you didn’t buy the “low-fat” product, you can easily see the information and choose how much you want to eat in each serving.
- The key is that the packaging provides you with information that is transparent. You can read the label and make an educated decision.
What does this have to do with investing and your financial future? A lot.
In most important decisions or situations you face in your life, you hope that the people or advisors you work with will always have your best interest in mind.
When you go to a surgeon, you hope the surgeon will do his or her best. You hope the surgeon’s only objective that day is for a successful surgery. You hope the surgeon is using the newest and best tools, techniques and medications. You hope the surgeon is not choosing to use 2nd class technology or equipment because she is being compensated or getting other benefits from a medical supplier.
When you retain a financial advisor, you should want them to provide you with advice, guidance and recommendations that are solely in your best interest.
However, the financial industry is not set up this way.
Our firm, as Registered Investment Advisors (RIAs), are legally bound to make decisions that are in our clients’ best interest. Isn’t that what you would want and expect?Don’t you want an advisor that is going to be transparent about their fees and costs, and clearly explain the internal fees of the investments that they recommend? We would want this….and we are transparent about all these matters.
However, brokers at the major brokerage firms and banks don’t operate under these same very high standards. Now, they operate under a suitability standard, which means that an investment or product can be recommended to you, even if there are better or less expensive choices, as long as they are “suitable” for you.
Under current standards, a broker could be making decisions on your behalf, but influenced by compensation structures that impact their decision process. They are supposed to disclose these conflicts and costs, but in reality, these disclosures are provided to their clients after the investments have been purchased. Further, this information is buried in long and complicated documents like prospectuses, which few people ever read, or can understand.
Is this really what you want?
Do you want an advisory firm that will always strive to recommend what they feel is in your best interest? Or, do you want a broker which makes decisions on your behalf that may not be “best” for you, but would be “good” for you…..but better for them, than another investment choices?
We bring this to your attention because the SEC last week approved new regulations for the investment industry that will be effective by June 30, 2020, but the new rules will continue to allow for two somewhat different standards.
The new rules will feature “Regulation Best Interest,” which will raise the bar for the brokerage industry, but it will still be lower and less transparent than the standard for a firm such as WWM.
WWM will continue to have a higher standard of fiduciary conduct to act in your best interest, now, and after these new rules become effective next year.
WWM is very transparent about how we are compensated. Our only compensation is from fees paid by our clients, based on the assets we manage for you. If your assets increase, we both benefit. If your assets decrease, our revenue goes down. We are on the same side of the table as our clients. We are not paid by any mutual fund, investment provider or custodian.
However, now and under the new rules, brokers can be compensated for total products sold and rewarded for asset accumulation. Current conflicts, such as contests for the sale of a specific product will be allowed to continue for another year. Brokers will be permitted to continue offering proprietary products and use compensation to incentivize sales.
If you have accounts only with WWM, you do not need to be concerned about such practices.
If you have assets at major brokerage firms, banks, insurance companies or other financial institutions that are not RIAs, you should be aware of these matters. You should ask questions, or we can help you to review your accounts and help you to understand what you are really being charged.
We are not saying brokers are bad, but the manner of compensation and conflicts of interest which can and do exist may not be in your best interest.
You should be fully informed with transparent information.
When you buy food, you can read the label. You can then make an informed decision.
As it is hard to read a prospectus, maybe you are better off with a financial advisor like WWM, that is clearly working only in your best interest.
Talk to us.
“What’s in the final SEC advice rules?” Investment News, by Mark Schoeff Jr. and Jeff Benjamin, Pages 10-11, 6/10/2019