Over 48% of individual investors surveyed mistakenly believe their investment advisors are indeed required by law to act in their best interest. That finding is among the surprising results of the 2019 Financial Trust Report from Personal Capital.
The Personal Capital report presents findings of a CARAVAN survey conducted by Engine among a sample of 2,007 adults 18 years of age and older. Another surprising result of this survey was that 65% of investors who work with a financial advisor incorrectly believe that financial advisors only make recommendations that are in a client’s best interest.
What surprised me the most from this survey was that 30% of individual investors surveyed think a financial advisor is likely to take advantage of them. But 97% trust that their own financial advisor will act in their best interests.
What?
Individual investors fear they are being taken advantage of by their investment advisor but still think the same investment advisor acts in their best interest.
This would make a great comedy sketch for Saturday Night Live. What is not so funny is that company 401(k) retirement plan assets are caught up in this confusion.
All investment advice is not created equal. Unless your investment advisor provides a level of a fiduciary standard, you are being “sold something.” That is the exact opposite of receiving investment advice in your “best interest.”
Registered Investment Advisors provide a fiduciary level of investment advice. As fiduciaries, they are legally required to act in their client’s best interest.
I provide a fiduciary level of investment advice for my individual company 401(k) retirement plan participant clients. In addition, I also provide the three most important parts of the current Best Interest standards outlined by the Department of Labor.
First, I follow a prudent process. As a fiduciary, I act carefully, skillfully, diligently and prudently as a knowledgeable professional. This is how I develop that decision of “what to buy” on a company 401(k) retirement plan default mutual fund menu.
Second, my specific mutual fund recommendations are based on the stock and bond market risk assessment of the individual company 401(k) retirement plan participant client. The dollars or percentages invested are determined by how much of their existing company 401(k) retirement plan account balance he or she is willing to risk.
The third part of the Best Interest standard is a requirement that my company 401(k) retirement plan investment advice cannot place my company’s interest ahead of the individual company 401(k) retirement plan participant. This is the least difficult part of the fiduciary level of investment advice process.
My company is not affiliated with the company 401(k) retirement plan sponsor (the employer) or provider (Fidelity, Schwab, Vanguard, etc.). My investment advisory fees put me “on the same side of the table” as my individual company 401(k) retirement plan participants.
Your best interest is served by gathering the information necessary to make the best investment management decisions available on the default menu of company 401(k) retirement plan mutual funds.
Disregard any company 401(k) retirement plan investment advice that opens you up to potential conflicts of interest and excessive annual mutual fund fees.
Ric Lager
Lager & Company, Inc.
