A reader, V.S., emailed me a few days ago to say: "I'd like to know where to get financial advice from. I know I need to seek out a fiduciary; however, everyone tells me they are one."
As someone who started her Wall Street career as a lawyer, I do have an answer on how to tell who is -- and is not -- a fiduciary.
I also have an insider's perspective on the investment advisory industry as the head of a fiduciary investment advisory boutique. I should have an easy answer for V.S. on where to get financial advice.
But I don't.
V.S., who is in her 50s, added: "I don't really know who to start with. ... I think I will never be able to retire fully. ... I am a little intimidated to take risks with my money because I'm afraid to lose any."
I understand fully. Even if you were to discount the downdraft that the broad market is experiencing now, ignore geopolitical unrest and the Russian invasion of Ukraine, as well as rising inflation in the U.S. at levels not seen since 1982 (tinyurl.com/yp52m5e4), whom could I recommend someone in V.S.'s position interview?
There is a vast field of fiduciary firms to access. To give you some context, there are 13,880 investment advisory firms regulated by the U.S. Securities and Exchange Commission, according to the 2021 Investment Adviser Industry Snapshot (tinyurl.com/mpsnskxh). There are thousands more that don't meet the SEC's size registration requirements; these firms are regulated by the individual states. That's the fiduciary playing field.
Close to 6 out of 10 of the SEC-registered investment advisers managed money for individuals in 2020 for close to 61 million clients. Hundreds of thousands of financial professionals wear two hats: one hat when acting as "investment adviser representatives," and another when acting as stockbrokers (registered representatives of brokerage firms). The fiduciary hat applies when acting as an investment adviser representative.
And, of course, thanks to new disclosure rules, we now have Form CRS to guide us on how to compare one firm to another, along with a list of "conversation starters" to ask the financial professional. (If you didn't see my column last week on Form CRS, email me; I'll send you a copy.)
Then there is BrokerCheck (tinyurl.com/5b8edfsv). Operated by FINRA, the Financial Industry Regulatory Authority, which regulates the brokerage industry, it can be used to find more details about firms and their individual representatives. BrokerCheck provides information about both investment advisers and broker-dealers.
The SEC's Investor.gov (tinyurl.com/2p82nmzb) and FINRA's Learn to Invest (tinyurl.com/56hdrd9w) also offer helpful insights.
This is all about the homework necessary to, again, compare and contrast one firm with another. That's the normal process one would go through to understand the differences in services.
But, where do you start the search?
The bottom line is this: Large firms that serve the vast retail market you can find easily -- they advertise. Niche fiduciary firms that specialize on the more complex needs of high-net-worth individuals are not visible in the same way. (Full disclosure: As an example, clients of my firm are introduced to us by their accountants, lawyers or other clients.)
To follow that example, high-net-worth individuals might ask their accountants or lawyers for a few names to interview. (But be sure to do your due diligence using Form CRS before choosing a firm.)
At the other extreme, someone with limited resources could turn to a nonprofit for help. For example, the Foundation for Financial Planning (ffpprobono.org/) is a nonprofit organization "dedicated to expanding access to pro bono financial planning for people in crisis or need." The foundation offers a "Navigating Your Financial Roadmap" workbook (tinyurl.com/yvr6yhrm) to help you assess your financial situation.
Someone in between these two extremes might do an internet search. Blogs and matching services do exist. Just be sure to check if the adviser pays a fee to be listed with a referral service. That would be a disclosable conflict of interest. Be sure to check Form ADV Part 2A and Form CRS.
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.
DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION