"More than half of Americans are currently not invested in the stock market and of those non-investors, 21% said it was because they don't trust brokers or financial advisors."
As a Certified Financial Planner, seeing survey results like these is certainly discouraging. The fact that almost a quarter of respondents cited lack of trust as a reason for why they aren't investing is quite alarming. Of course, this isn't the first time trust has been called into question when it comes to brokers and financial advisors. Recently, in another eye-opening survey, we learned that more people trust Uber drivers than brokers/financial advisors. No offense to Uber drivers (good experience personally), but the fact that we're comparing random strangers who show up at the push of a smart phone button for a ride around town to financial advisors tells us plenty about the general perception of the financial services industry.
So what is an investor looking for professional financial advice to do? In short, simply asking "Do you have my best interests in mind?" is a great place to start. Congress is currently debating whether to require financial advisors put client's needs before their own. Yep, you read that right. At the moment, that doesn't necessarily have to be the case. Most brokers, insurance salespeople, and advisors operate under what's known as the "suitability standard" which only requires that an investment is suitable for a client at the time of investment. This is a pretty loose requirement which ultimately can be satisfied by recommending the least suitable of any number of suitable options. Encouraging right? Registered Investment Advisors (such as Exchange Capital Management) on the other hand, must operate under the "fiduciary standard" which requires the avoidance of conflicts of interest and operating with full transparency. A fiduciary also has a "duty to care" which extends a Registered Investment Advisor's requirement to continually monitoring not only a client's investments, but also their ever changing financial situation. Under the suitability standard, the financial planning process can be a one-time event whereas for fiduciaries, the initial planning work is just the beginning of their ongoing commitment.
Will the financial services industry finally be forced to adopt a higher standard of care next year when Congress rules on broadening the fiduciary standard? Hard to predict given the powerful, Wall Street-backed lobbying campaign against the proposed reform. While this resistance suggests just how lucrative the suitability standard is for firms, investors can protect themselves regardless of what Congress decides by making sure their advisor is already held accountable to putting client interests ahead of their own.
