Are you relying on the wrong advice?

Most small business owners are hard-working individuals that are so busy trying to make a living that they don’t have time for the seemingly unnecessary peripheral issues. They often leave issues of great financial importance up to others, and this could prove to be a grave mistake. One of those issues is investment and retirement account advice. For years there has been a lack of transparency in the financial services industry, and if the Department of Labor has its way, this is all going to change very soon. There’s a good chance that the individual you are getting advice from is not working for you but for the firm they are representing. That individual, who may seem to be a nice gal or guy, will recommend things to you that may not be in your best interest. As an example, at full commission stock brokerages, the representatives are salespeople. Their financial people, known as brokers, are required to sell from a daily sheet or a list of things that the brokerage wants to push on you. It may not even be a good choice for you at all. This is the way things have worked for years. You go into a firm, and the Rep can sell you things that make the Rep and their firm a lot of money but maybe a very poor choice for you.

There’s a word in the financial industry that most people are unfamiliar with but lately, more and more people are coming to know this word. The word is fiduciary. A fiduciary is somebody who is required by law to put what is in your best interest first. With all the titles that people use peddling investments, insurance products, mutual funds, and stocks and bonds, you might have thought that the person who you’re talking to is a very nice friendly person and that they are working for you, but the reality is they are representing the best interests of their firm first. They may be hurting your future with massive commissions, high fees, and poor investment choices that are vastly inferior to others that may be available to you. The question is, will the person you’re dealing with do what’s best for you? Ultimately the responsibility is yours. Be aware of who an individual is working for when you’re getting advice. There’s only one standard that should be acceptable for you. That is that you only get financial advice, investing advice, and retirement advice from someone who lives by the fiduciary standard. If you don’t have it in writing that the individual is working as your fiduciary, then you may be putting your future and your financial security in danger.

Now, just because somebody’s a fiduciary doesn’t mean that they are good at what they do. Remember that receiving advice from somebody who has his or her heart in the right place and who wants to do right by you doesn’t mean they will be great at giving advice. What should you do? Start with, you only get advice from somebody if you need advice and only get advice from someone who is specifically and legally required to work for you. Again it’s called a fiduciary. When you’re looking at fiduciaries, like anything else, they’re not all created equal. It’s like any other business you may come across. If there are several car dealers in your area, one may have a great reputation, a couple may be okay, and one may have a terrible reputation. Think about that when you’re looking for advice. Shop around. Interview the people you want to use to see if they are a good fit for you personality wise. Are they asking you the right questions? Do they really want to know you? Do you feel like they care? Are they concerned with what your goals are? Or do they jump right away into this is what’s best for you? Sometimes what’s best for you means this is the best thing I have to offer you. A true fiduciary would refer you elsewhere if their product is not a great fit. Also, they should be able to tell you in a non-emotional way, this is why you would work with me, and this is why you would want to go elsewhere.

The bottom line is there are many great individuals out there who want to serve you and serve you well. It’s always a few lousy individuals that ruin it for the others and give an industry a bad name.

Be mindful of what’s going on and educate yourself. Ask plenty of questions and don’t take action if you don’t fully understand what’s going on. A fiduciary will use an educational approach, and they will want to make any business transaction to be a win-win. It has been said that most Americans spend more time planning their two-week annual vacation than they do their 30-year retirement. Don’t let that be you!

Jay Thompson is a Business Consultant with the CSU Bakersfield Small Business Development Center. The CSUB SBDC provides premium, one on one, no cost consulting to small business owners in Kern, Inyo and Mono Counties. For more information visit their website at http://www.csub.edu/sbdc.