Wealth Management Blog

Posts tagged Financial Advisor

The One Rule Many Advisors Don’t Follow

By JJ Burns

March 9, 2017

What is the “Fiduciary Rule”?

You might have heard in the news about the new “fiduciary rule.” Although it might seem confusing, basically, the Department of Labor created a new retirement investing rule that’s supposed to go in to effect on April 10, 2017.

“Fiduciary” is defined as the relationship between a trustee and the person or body for whom the trustee acts. In other words, it’s an individual who holds a legal or ethical relationship of trust, and has an obligation to act in the best interest of the beneficiary.

The rule was created after a government report determined that U.S. retirees lose a total of $17 billion each year because of conflicts of interest. Since the Department of Labor oversees regulations for 401(k)s, they decided in step in.

The rule is designed to help average investors save more money for retirement and spend less on commissions and fees.

Using Celebrities as Examples

What about the not-so-average investor? Their stories are fascinating because of the person’s fame.

We can all learn from the high-profile mistakes of a celebrity, such as the recent case of Johnny Depp. He is out of money. Now the courts will decide if it was his fault for living a lavish lifestyle, or if it might have been the fault of those giving him financial advice.

Despite tales of large monthly wine budgets, and purchases of a village in France and islands in the Bahamas, this is yet another celebrity example for everyone. The bottom line: the lesson to learn here is whether your financial advisor is serving your needs or not.

Fiduciaries and You

What does this mean? Right now, although many financial advisors give sound advice, some may recommend investments because of the commission they will get—not what will make the wisest choice for the client.

The new fiduciary rule applies only to 401(k) and retirement investment vehicles. The Department of Labor does not have jurisdiction over other types of investments.

Some of the larger firms have been scrambling to make changes and determine how they can adjust their practices to serve their clients under the new regulation. Plans may be changing. Accounts may be restructured. Clients are being called in for meetings to explain what this means to them.

Fee structures and investment offerings are now being scrutinized and retooled. Portfolios are being rearranged.

Obligation or Choice?

Many people assume their advisor is behaving as a “loyal fiduciary and prudent steward,” as Johnny Depp’s lawsuit describes. Until the Department of Labor started placing the spotlight on “fiduciary,” many clients did not realize the extent of possible conflict of interest.

Celebrities can hire expensive advisors of all kinds to help them understand the myriad of legal disclosures and fine print. But what about ordinary people? No matter who you are and how much money you have, you hire people to help you make decisions and manage your affairs in a beneficial way.

How do you know if your financial advisor is a fiduciary? Ask. Take a look at your statements. Know what you are paying for. You should feel comfortable with the answers you receive.

Who Has Responsibility?

You might be able to do your own taxes, but you hire an accountant to do it for you to save time and leverage their expertise. You even hire someone to take care of your yard, not because you don’t know how to mow the lawn, but because it allows you to do other things.

There is a battle waging over the Fiduciary Rule. One camp says investors should understand where they are putting their money and not blindly take advice from their financial advisors. The other side believes clients don’t always know the full picture. They hire an expert for advice to help save for retirement, not to invest in funds with the highest commissions.

In the movies, everything usually works out. In real life, it’s not always so simple. For the busy professional, and even the seasoned investor, the best path can be terribly confusing. Your advisor should be able to help.

The Future of Fiduciary

The Obama administration began the Fiduciary Rule implementation, but it was very complicated and many details were not ironed out. The Trump administration has voiced opposition to the regulation, ordering a six-month delay in the rule’s implementation.

Despite uncertainty among politicians and firms, JJ Burns & Company has always and will continue to act as a fiduciary for clients. It is one of the reasons our clients trust us. It is one of the qualities setting us apart from other advisors.

We are here to talk with you anytime.

Your Whole Picture

The new rule applies only to retirement investments and 401(k)s, but we feel that your financial advisor should treat your entire portfolio as a fiduciary would. Why should they serve your best interests for retirement accounts, but not your other investments?

JJ Burns has always felt that taking the role of a fiduciary—someone who serves the best interest of the client—is important. We are happy to sit down with our clients to review investments, portfolios and personal financial plans. We always want you to understand where your money is and why it is there.

How to Choose a Financial Advisor: 8 Questions to Ask

By Anthony LaGiglia

June 16, 2016

Whether you're beginning to plan for your financial future—or have found yourself smack dab into making significant decisions that you didn’t anticipate—at some point you’ll need to consult with a financial advisor. However, it can be difficult to always know who the best person is to trust your finances to.

Choosing a financial advisor goes beyond working with someone who has the backing of a large brokerage firm or an impressive list of credentials behind their name. When you look around, there are a lot of alphabet-soup designations out there. Anyone can call themselves a financial advisor, but that doesn’t necessarily mean that they are highly qualified to advise you.

What to Look for in an Advisor

Professional credentials do not tell you everything you need to know about an advisor. You should also look at an advisor’s experience, investment style, and type of clientele. Use the following questions to help you in evaluating an advisor.

  1. What are your qualifications? Advisors must be registered with the Securities and Exchange Commission (SEC) or Financial Industry Regulatory Authority (FINRA) in order to provide investment advice. It’s important to understand the two standards of care that advisors are held to by each. The fiduciary standard requires that an adviser put the clients’ interest first and is enforced by the SEC, while the suitability standard is enforced by FINRA and requires that a broker make recommendations that are suitable based on a client’s personal situation. You should also do your due diligence to find out if a potential advisor has ever been investigated or found guilty of an infraction.
  2. How does your firm operate? No great advisor goes at it alone so discover all you can about the team behind the principal advisor. The mix of the team speaks volumes about the firm. Ask what licenses, certifications and/or credentials members of the team have. For example, many top advisory firms will have a Certified Financial Planner (CFP) and a Chartered Financial Analyst (CFA) on their team. Go deep and investigate other members on their team as stated in the above. Ask what role they play and how this will benefit you.
  3. What services do you provide? Some advisors only offer investment planning, while others take a whole life approach. As an example, Certified Financial Planners (CFP) have a process that looks at your overall goals and creates a written plan that addresses the wealth gaps to get you where you want to go.
  4. What does a financial plan look like? Of course every plan is different and should be tailored to the individual investor. However, ask to look at a sample portfolio or investment plan. Find out how the advisor approaches the planning process and communicates with clients. Ask if or why you need a plan, you may not depending on your needs. Also be sure to ask for client references—and then check them.
  5. What is your investment approach and how do you choose investments? It’s important that advisors have a process of how investments are chosen and deployed in an asset allocation. Your advisor should be able to explain how and why a particular investment is chosen. Discover their buy, sell and rebalance disciplines. It’s easy to buy investments, it’s the discipline of when and why to sell that are keys to better performance.
  6. What is your communication style? Some clients are very financially savvy while others appreciate a bit of hand-holding and education. Will your advisor and his or her team take the time to thoroughly explain the markets, the investing rationale—and any other questions that you may have? At times of market stress, how does the advisor communicate?
  7. How are you compensated? Some advisors are strictly fee-based, while others earn their living by commission or from selling an investment product. Ask if there are any conflicts of interest which would motivate the advisor to do something that’s not in your best interest. Be sure all fees are disclosed and if you’re unsure about something—ask!
  8. What makes the investment team unique? We ask these questions when we buy a car, hire a contractor, or work with a personal trainer. An investment advisor should be no different. Ask them how they define a successful relationship. If your advisor can’t explain in clear language why they are different and how you will benefit from becoming a client, move on.

Know When It’s Time to Change Advisors

You may have been with an advisor for many years and have not been particularly satisfied. But sometimes it seems easier to stay with them because change can be just as difficult. Stop and take a minute to see if any of these points apply:

  • Lack of communication: A good advisor is always available for clients—by phone, email or appointments. If your advisor isn’t keeping you in the loop, it’s time to look for someone else.
  • Pushing products instead of giving advice. One size does not fit all. Your financial plan should be tailored to your specific goals. Avoid advisors who recommend cookie-cutter products or plans.
  • Not being proactive—or reactive. A year or two of lackluster performance isn’t cause for alarm. Those are things that an advisor cannot completely control. However, if your performance returns continue to be out of line with your risk tolerance or goals, be sure to discuss re-vamping your investment strategy. And, if you come away feeling that your advisor isn’t listening, consider making a change.

At JJ Burns & Company, we believe a good advisor is truly your partner in your long-term financial success. Talk to us about how we can help you reach your goals.

Choosing an Advisor: Big or Boutique?

By JJ Burns

February 6, 2013

A survey from the Luxury Institute shows that high-net-worth investors (with $5 million or more in assets) prefer boutique wealth management firms over Wall Street giants. Those who opt for boutique firms cite quality, exclusivity, and other factors. But what about investors of more limited means? What’s the best choice for them—smaller independent firms or big-name companies?

The Wealth Management Luxury Brand Status Index (LBSI) survey from the independent Luxury Institute in New York scores respondents’ answers based on each firm’s quality, exclusivity, social status, and ability to deliver special client experiences. The average respondent reported $15 million in net worth and income of $720,000.

“Reputations for honesty and superior client service are what make the smaller firms standouts in this survey,” says Luxury Institute CEO Milton Pedraza.

Investors have been shifting toward independent advisors for years. The number of independent Registered Investment Advisors, for instance, surged 31% between 2004 and 2010, according to Cerulli Associates Inc. A report by Charles Schwab, the 2012 RIA Benchmarking Study, shows RIAs enjoyed an 8.2% increase in new clients in 2011 (subtracting departing clients cuts the increase to 4.7%), along with a 12% gain in revenue.

The trend is partially due to technology, as smaller firms are now able to offer access to many of the specialized investment vehicles and services that were once the province only of larger corporations with more resources. Declining trust in larger firms in the wake of the 2008 financial crisis is another factor.

Smaller firms enjoy a reputation of being more likely to put clients’ needs first, while large firms are believed more likely to push in-house products. Another widespread belief is that smaller firms offer more in-depth, personalized service.

Many investors remain with big-name firms, however, especially if they are primarily looking for investment services that include access to high-end alternative investments. Even though access has become more widespread through technology, many of the larger firms still have an edge in terms of cost.

Some investors have even more specific reasons for sticking with the larger companies. For instance, an executive at a big, publicly traded company who has stock options may want to work directly with the financial services firm that handles that company’s options.

Still, many investors have shifted to smaller, independent firms, which tend to offer more comprehensive wealth management services and more coordination among investment, tax, legal, and other advisors.

If you are looking for a financial advisor, consider interviewing advisors from both large and small firms, then compare them in relation to your own needs and goals.

The Benefits of Working With an Advisor

By JJ Burns

November 18, 2012

People who work with a financial advisor are far more likely to understand the situation they will face after they retire, according to a recent survey by Franklin Templeton Investments.

Two out of three people who work with a financial advisor know the amount of retirement funds they will withdraw each year after they retire. That’s almost twice the proportion of those who’ve never worked with an advisor who have that knowledge, according to the Franklin Templeton Retirement Income Strategies and Expectations (RISE) survey, taken in September 2011.

Volatile world markets and changes in the way people build retirement assets make it more important than ever for pre-retirees to understand their retirement picture, says Michael Doshier, vice president of retirement marketing for Franklin Templeton.

“Sixty-seven percent of respondents were more concerned about investment volatility than they were prior to the recession that began in 2008,” Doshier said. “People’s worries varied by age, gender, and income level, but from a general standpoint, some of their specific worries related to health expenses, Social Security, and simply running out of money.

“Our survey also showed, however, that working with a financial advisor can make a clear difference in how Americans think about retirement planning. By sitting down with a financial advisor, identifying and prioritizing one’s retirement goals and concerns, and writing down a simple plan to address them, people can take meaningful steps toward confident action.”

The RISE survey was conducted online among 1,020 men and 1,026 women. Here are other findings:

  • 38% of respondents who never have worked with a financial advisor said Social Security will provide the most income during their retirement, compared with 19% of people who work with an advisor.
  • Just 4% of people who never have worked with a financial advisor said IRA funds will provide the most income during their retirement, compared with 13% of people who work with an advisor.
  • 35% of people who never have worked with an advisor said they do not think about how they will approach different sources of retirement income.
  • Running out of money in retirement is the top concern of 35% of people who never have worked with an advisor, while 24% of those who work with an advisor cited it as their top concern.
  • Of those respondents who never have worked with an advisor, 41% said they don’t think they have enough money to need one, and 30% said they prefer to handle their finances on their own.
  • 79% of Americans currently do not work with a financial advisor, but 47% of respondents said they would consider going to a financial advisor or switching their current advisor if the advisor prepared a written retirement income plan.