Fiduciary- you may have heard many financial services firms use this word in describing their commitment to providing independent advice to clients. But, can the actual decisions, size and service (or lack thereof) strategy of the firm tell a different story? In my opinion, yes. Below are some areas I believe should be heavily scrutinized by both prospects and clients when evaluating a financial or professional service firm.
Is the Firm Is Promoting The “One Stop Shop”?
Don’t get me wrong, having all of your professional needs serviced under one firm or brand can be very convenient. I’ve noticed a trend in many financial services firms to expand their offerings to include tax advice, wealth management products and estate planning services. To clients, this could be viewed as the firm acting in their best interest by providing many resources from a trusted source. But, this strategy can also be used as a tool by the firm to cross-sell products and services that may be inferior to what’s available outside of the firm. For example, you may love and trust your CPA. You may have also been told your CPA’s firm offers wealth management services. How can you be sure the wealth management firm will deliver the same service and independent advice you receive from your CPA? How do you know there is not a better or preferred option outside of the firm for wealth management services? Can you be sure this isn’t a strategy used by the firm as a quick fix approach to generate more revenue from clients to support other business interests within the firm that are losing money (i.e. if the firm also has a bank, lower interest rates may be reducing banking revenue-if the firm bills hourly, technology may be replacing human work and therefore lowers billing hours)? It may be convenient to take your trusted professional’s advice and use other services within the firm, but what you may not know is your professional could be under significant pressure to cross-sell products and services because the core business of the firm is suffering financially. The pressure your professional receives from their firm to promote internal solutions under this scenario may be, in my option, a significant conflict of interest.
Your Financial Professional Is Tasked With Using A Team of Specialists
There is nothing wrong with a team of specialists put in place to support your professional advisor. I have personally been associated with some wonderful teams that performed specific functions which allowed me to have more time to service my clients. For example, while completing a financial plan, it was nice to have a team that was specialized in strategies focused on Long Term Care and Social Security to review the plan and make sure I was not deficient in providing all the information I could be potentially covering with clients. But when do you know if the specialist team your advisor has brought in to review the plan is not acting in your best interest? In this scenario, it is important to keep a close eye on how involved the advisor is with the specialist team after the financial plan is complete. Does the specialist team keep the conversation consultative, or does it start to become a product push? If the specialists are discussing a specific product or solution, do they recommend going out into the open market to price the solution? Or, is it conveniently mentioned that they are just an extension of your advisor and it is already implied that the advice they give is objective? Does your advisor even have a say in what product or solution is used if your advisor wants to price solutions outside of the firm? My experience has led me to conclude that advisors who are encouraged to use a team model may have to rely on specialists that are operating as salespeople and not as independent consultants. I have recently witnessed firms phasing out or eliminating the advisor from conversations alongside the specialist team because the advisor is not on board with pushing a product or agenda. If you have been reassigned to a team of specialists (this may happen when the firm, for no particular reason, terminates an advisor because of their lack of “commitment” to the firm) or your advisor brings them in reluctantly because the firm believes this is a better service model, then this is a red flag and the fiduciary relationship may have been compromised by the firm’s strategy. My perspective: if the product or solution carries the same brand name as your financial planner (ie XYZ Financial Planning recommends you speak with XYZ Asset Management and XYZ Insurance Services), then the team of specialists and solution may not be independent.
As The Firm Grows, The Client Experience Suffers
How many clients have experienced this scenario: You love working with your professional advisor due to their diligence and commitment to client service. At some point, your advisor or advisor’s firm merges or is a acquired by a larger firm. Over the next several months, returned calls from your advisor become more difficult to receive and you are continually speaking to different people with no formal introduction to handle your inquiries. Lately, the service from your professional seems to be more reactionary than proactive. Why is this? In my opinion, the firm they are now affiliated with has grown to a point where the advisor’s time is stretched thin and they no longer can provide the service they have in the past under their own independent model. It is counter intuitive to say that partnering with a larger firm may not help facilitate improved services and resources to clients. In this scenario, the large firm may be looking for ways to keep improving revenue through acquisition, and to do this, the firm reduces the human capital and resources your advisor once relied on while servicing your account. Your advisor begins to lose the battle of managing the client service experience and is tasked with promoting the agenda of the firm. Your communication with your professional is now more about the firm’s various products and services. At this point, the advice may not be independent. You may no longer be a priority as a client, and the firm’s agenda has become the priority of your financial professional. If you are not hearing from your advisor, at minimum, every six months (this does not include auto-generated emails from the firm), then I believe it is time to question the strategy of the firm. Is your advisor still tasked with focusing on you as an individual client? Or, have they been stripped of their resources to improve the firm’s bottom line?
In summary, not all firms operate this way, and I encourage all clients and prospects to use this guide when evaluating their current relationship or when they are interviewing financial firms. I’m available to consult with you through this process of firm evaluation.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
The opinions expressed in this article do not necessarily reflect the views of LPL Financial.