All investment advisors registered with the U.S. Securities and Exchange Commission (SEC) or a state securities regulator must act as fiduciaries. Broker-dealers, stockbrokers and insurance agents are only required to fulfill a suitability obligation. This means that while they must provide suitable recommendations to their clients, they don’t have to put their clients’ interest before their own.
Becca Stanek, CEPF® Becca Stanek is a graduate of DePauw University. Becca is an experienced writer/editor who serves as a retirement expert for SmartAsset. She's passionate about helping people understand the sometimes daunting ins and outs of personal finance. Becca is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. Her work has also appeared at Time, The Week, Mic and The Washington Monthly. Becca grew up in the Midwest and now lives in New York City.
The financial services field is constantly evolving and changing. Recent decades have seen the rise of unified managed accounts, the development of exchange traded funds (ETF), the evolution of annuities and insured investment products, and a host of other developments. Change is par for the course as the industry adapts to dynamic economic conditions and changes in what investors want and how they wish to deploy their assets.
Investment advice can range from a general recommendation as to what type of asset allocation model you should follow, to specific recommendations on which investments to buy and sell. Some financial planners also offer investment advice and investment management services in addition to financial planning. Ask a potential financial planner if they give specific investment advice or only offer planning services.
The advantages that employees can reap from a fiduciary advisor are mainly based on getting personal. The employees will have a full-time financial planner who personally knows them and their individual situations and has their best interests in mind when making recommendations. This personal level of service will likely lead to other benefits as well, as the advisor could assist employees in other areas such as budgeting, estate planning, or income taxes.
If you’re starting out and don’t have a trove of assets, an planner who charges by the hour could be the best fit. These planners are best for when your needs are fairly simple. Typically, hourly planners are just building their practice, but that usually means they’ll take the care to get your finances right. After all, they’re relying on your recommendation to grow their business. Finally, many experienced advisers do hourly work because they enjoy working with younger clients who can only afford to hire someone at that rate.
After you have covered the basics and want a solid overview at a more detailed level, The Wall Street Journal Guide to Understanding Money & Investing is a great place to start. When you are done with that, your local library or bookstore will contain a variety of magazines covering both timely and general financial services topics. When you are ready to learn about equities, Value Line is a great publication that provides an introduction into how you can begin to research and analyze stocks. Even if you choose not to conduct your own stock analysis, the website is worth a visit.
Fiduciary duty is a legal responsibility to put the interests of another party before your own. If someone has a fiduciary duty to you, he or she must act solely in your financial interests. A fiduciary cannot, for example, recommend a strategy that doesn’t benefit you but instead provides a kickback. You can think of it like the doctor-patient relationship, where one party has a duty to provide the best care it can to the other party.
The CFA program is an extremely well-regarded curriculum, and the CIPM program "is the investment industry's only designation dedicated to investment performance analysis and presentation." If articles with titles like "Evaluating Portfolio Performance" by V. Bailey, Thomas M. Richards, and David E. Tierney, and "Investment Performance Measurement: Evaluating and Presenting Results," Philip Lawton and Todd Jankowski, eds. (Wiley 2009) capture your interest, the CFA institute has a reading list that you are sure to like.
The Financial Expert is a 1952 novel by R. K. Narayan. It takes place, as do many other novels and short stories by this author, in the town of Malgudi. The central character in this book is the financial expert Margayya, who offers advice to his fellow townspeople from under his position at the banyan tree. He is a man of many aspirations and this novel delves into some level of psychological analysis.The Financial Expert tells the story of the rise and fall of Margayya.
Before hiring a planner to help with your finances, make sure to understand what you are paying for. Question the planner about his or her specific training and qualifications, fee structure, and services the professional will provide. Consider developing a list of questions when vetting a financial planner. Finally, check the disciplinary record and references for the planner to make sure you’re receiving the best quality financial guidance.
If you make it this far, you are clearly serious about your endeavor. Now it's time to make your quest a daily habit. Subscribing to the The Wall Street Journal will give you a daily overview of the issues impacting global business operations. The WSJ also has a great "Money and Investing" section. Barron's is another fine publication read by many professionals in the financial services industry. There are many other top-quality publications dedicated to various aspects of the financial services world. Find one that matches your interests and read it.
Fiduciary duty is important for guiding the actions of the professionals who deal with clients’ money. It’s also important because, when violated, it provides an avenue for legal action. If a financial professional who isn’t a fiduciary has been knowingly selling you low-performing, high-fee investments, you don’t have the legal standing that you would have if the professional were a fiduciary.
The planner might have a specialty in investments, taxes, retirement, and/or estate planning. Further, the financial planner may hold various licenses or designations, such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Financial Consultant (ChFC), or Certified Investment Management Analyst (CIMA), among others. To obtain each of these licensures, the financial planner must complete a different set of education, examination, and work history requirements.
Dr. Pal, who sells him the manuscript of a book on Bed Life, for whatever ready cash Margayya's purse contains, assures him that the book named Domestic Harmony will sell in tens of thousands if only he can find a publisher. Madan Lal, “a man from the North”, reads the manuscript and agrees to publish it on a fifty-fifty partnership basis. The book is at once popular and sells like hot cakes and Margayya hits a fortune.
Typically, financial planners earn their living either from commissions or by charging hourly or flat rates for their services. A commission is a fee paid whenever someone buys or sells a stock or other investment. For reasons we’ll explain later, you may want to avoid financial planners who rely on commissions for their income. These advisers may not be the most unbiased source of advice if they profit from steering you into particular products.