Does Your Advisor Have Your Back?

Unfortunately for Wells Fargo, the company (specifically Wells Fargo Advisors) was in the news for all the wrong reasons again today. And, before I go any further, let me say that I have friends and colleagues that work at Wells Fargo and are great people! As with many things in life, it comes down to whether or not you trust the person you’re working with. So, if your advisor is under the Wells Fargo umbrella, and you’re happy and meeting your goals, then I don’t think there is too much reason to be overly concerned.

If you aren’t aware, Yahoo Finance released a report titled “Wells Fargo pushed wealth advisors to use high-fee products, cross-sell.” You can read the article here. As an advisor who used to work in a similar environment, I can say that this type of news is not surprising in the least. And, I can almost promise you that this type of behavior is occurring in many firms across the country (if not the world). The fact is that sales goals exist in many industries, and the financial advisory industry is no exception. However, pushing an advisor or broker to “sell more” can sometimes lead to him or her not acting in his clients’ best interests.

In my previous life, I too had sales goals and was effectively paid based on how much business I brought into the firm. If I didn’t meet them, I got paid less and risked losing my position if my underperformance continued. On the surface, that doesn’t sound so unreasonable, but it created an environment rife with conflicts of interest. I believe that I always acted with my clients in mind, but the pressure to constantly generate new business and revenue was real.

Enter the Fiduciary Standard which was first introduced in the Investment Advisors Act of 1940. It requires investment advisors (regulated by the SEC) to put their clients’ interests ahead of their own. On the other hand, many firms such as broker-dealers have to meet a suitability obligation and are regulated by FINRA. Note that the suitability standard is not as stringent and does not require the broker to put the client’s interests first (even though he or she might be doing so).

This is certainly a much-debated topic, and one that is difficult to go into full detail in one blog post. I think the bottom line is that it’s important to be aware of what your getting into when it comes to investing. Ask questions and ask how your advisor or broker is getting paid and by whom. Again, it’s usually not what firm an advisor works for that matters; what matters most is do you trust and believe that your advisor/broker/planner is acting with your interests in mind?

On a somewhat-related note, my family and I just got back from our annual trip to Bethany Beach. We always make a day trip over to the Rehoboth Boardwalk to go to Funland (think old-school carnival rides and games). As with most of these places, you can ‘win’ stuffed animals, which are always a joy for parents to tote around! 😊 In the spirit of setting sales goals, we require each kid to win two toys BEFORE they can get ice cream! Just kidding (sort of).

From L to R: Lyla, Cousin Bennett, Cousin Stella, Molly, and Coleman – Sister-in-law Britta (L) and my wife Melissa in back

Categories : Financial Planning

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