• View
• Edit
• Print

What Your Advisor Doesn’t Want You To Ask

What Your Advisor Doesn’t Want You To Ask by David John Marotta (2005-09-19) (reprinted here with permission)

Simply put, the term "fiduciary" applies to the more than five million individuals who have the legal responsibility for managing someone else’s money. A fiduciary is required by law to always act in the best interests of their client, beneficiary, or retirement plan participant.

Yet, many fiduciaries are not even aware of their legal responsibilities. Last month Bob Arms and I completed a specialized program on investment fiduciary standards of care at the Center for Fiduciary Studies. The Center, in association with the University of Pittsburgh Joseph M. Katz Graduate School of Business, was established in 1999 to provide the investment industry with the first full-time training and research facility focused exclusively on investment fiduciary responsibility and portfolio management. Our program was held in the former Masonic Temple which was purchased from the Masons by the University of Pittsburgh. Our courses were held in what is believed to be the former Masonic secret meeting chamber in the center of the building. Whether or not your investment advisor is a fiduciary shouldn’t be kept a secret from you.

The most important question you can ask is, "Do you have a legal obligation to act in my best interests?" Probably the most important question you can ask of anyone offering you financial advice is, "Do you have a legal obligation to act in my best interests?" That question is at the heart of the Merrill Lynch exemption that allows stockbrokers to be able to offer the same services as Fee-Only financial planners without being accountable to the same fiduciary standards.

That question is at the heart of approaching Hedge fund investments very, very carefully because it is very difficult for the fiduciary to adhere to a prudent process when implementing with these types of funds.

That question is at the heart of the Social Security Reform debate. Privatized accounts would be protected by existing fiduciary legislation. Under the current program the government has no such fiduciary responsibility.

That question is at the heart of the criticisms of commissioned mutual fund and insurance sales structures whose compensation inherently creates conflicts of interest.

And that question is what many financial professionals fear the most.

It is the bright white line that separates those who sit on your side of the table and have a legal obligation to act in your best interests and those who sit on the other side of the table and have no such obligation.

When it comes to your money make certain all of the members on your team of advisors are on your side of the table.

See also

Many more excellent articles on financial matters on Marotta's web site: http://www.emarotta.com

Marotta Asset Management, Inc. of Charlottesville provides fee-only financial planning and asset management. Visit http://www.emarotta.com for more information.