A Matter of Trust…

Recently, I met with prospective clients to discuss their financial goals and objectives, as well as the many services Moneta Group could offer them. One of their primary concerns was an emphasis on working with an advisor they could “trust” and who they felt was “competent.”   These were simple requirements, I thought.  In fact, I wondered why they even needed to be discussed. Clearly, anyone seeking financial advice would have the expectation that the person they are entrusting with their family’s financial future would act only in their best interests.

Unfortunately, there are a number of individuals and firms who do not hold themselves to that key aspect of the fiduciary standard, although many consumers assume it is inherent in any financial advice they receive.  However, there are two very different standards in our industry, and not all advisors are held to the fiduciary standard, but instead abide by a broad definition of ‘suitability’ when offering advice.  The cloak of suitability allows some advisors to make recommendations in a vacuum rather than considering a client’s overall financial goals and objectives.  The most recent example of this is alleged to have taken place within one of the largest and most prestigious financial institutions in the world, Goldman Sachs.

Last week, the SEC filed suit against Goldman alleging that the firm made “materially misleading statements and omissions” about a Collateralized Debt Obligation (CDO) investment sold to investors.   The SEC claims that Goldman packaged and sold selected toxic sub-prime mortgages to investors without disclosing that these same investments were being bet upon to fail by a hedge fund associated with the company.  In their defense, Goldman maintains that they are not a fiduciary and should not be held to a higher standard than the one which legally binds them, the suitability standard.

In the fallout of the financial crisis of 2008, Washington is turning its focus from healthcare reform to financial reform.  Organizations such as the Certified Financial Planner (CFP) Board of Standards, Financial Planning Association (FPA) and National Association for Personal Financial Advisors (NAPFA) are lobbying to bring a universal standard of accountability and competency to all who describe themselves as financial planners.  Unfortunately, many big brokerage firms and wire houses would prefer not to be held by these higher standards and they are speaking loudly to preserve the ‘suitability’ standard—with their checkbooks.

According to a recent survey conducted by the Certified Financial Planner Board of Standards of more than 3,000 financial planners nationwide, nearly 60 percent of the respondents were aware of specific cases of financial abuse of their clients or other consumers.   Unfortunately, these statistics are evidence of a pattern we too often hear firsthand when meeting with prospective clients.

Fortunately for our clients, we at Moneta have always subscribed to the fiduciary standard, even though it has only recently become headline material.  We publicly support financial reform and legislation that would hold those who market themselves as financial planners to be required to adhere to fiduciary standards—the standard we believe the public deserves.  We act only in our clients best interests and we believe that our industry should unite in doing so.

Please support our efforts in furthering the consumer’s best interests by writing your local elected officials and voicing your opinion in support of this important financial reform.

Bill Dickens, CFP®

Bill is the professional consultant for Doug Weber.

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