The difference between the fiduciary and suitability standards is such a popular topic on “Keen on Retirement” because it’s such an important distinction. If you’ve never worked with a financial professional before, then you need to be crystal clear about the terms of your arrangement, the means by which the professional is compensated, and how committed both parties are to realizing your dream retirement scenario.

If you’re still a little fuzzy on fiduciary vs. suitability, I think today’s episode is going to provide some real eye-opening clarity. With a little help from an expert guest, we’re going to talk through an example of the fiduciary standard in action right here at Keen Wealth headquarters.

       

 Download the Transcript Here

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Key Insights on the Fiduciary Standard in Action

A brief review.

There are two ways that someone can work with a financial professional.

First, under the suitability standard, a broker makes a product recommendation to you – the investor – and is only required to ensure that the product itself is “suitable”. But the broker is under no obligation to ensure that the product is in your best interest, or to provide advice that’s in your best interest, or even to address how a transaction might affect your overall financial situation. In most cases brokers are paid a commission, which can further incent them to transact these “suitable” sales with their clients.

Under the fiduciary standard, fiduciary advisors like my team at Keen Wealth are held to a much higher standard. My advisors are required by law to make decisions that we believe are in our clients’ best interests. My advisors are under no pressure to sell any particular products. Our clients pay us only for the assets we manage and for our advice.

The U.S. Department of Labor has been pushing for stricter fiduciary standards across the entire financial industry to protect investors. But just last month the annuity and brokerage industries won a major court victory against these stricter standards by arguing that brokers and annuity agents are not advisors at all, just salespeople who do not have a relationship of trust and confidence with their clients.

Now, there are certainly valid reasons to buy a product from a broker. For example, if you know you need a term life insurance policy, shopping around for the best price might not require a fiduciary relationship.

But your financial plan is bigger than any one product. And at Keen Wealth, we’re not in the business of selling products in a vacuum. We’re helping our clients plan for their lives, for their children’s lives, for a happy retirement, for a fulfilling legacy. We take that responsibility very seriously.

Meanwhile, the brokerage and annuity industries are arguing, in court, that they don’t have such responsibility at all.

What’s best for this particular person?

Recently, a soon-to-be retiree came to Keen Wealth looking for a second opinion. Before joining his current company, this gentleman had worked for the State of New York for 20 years. An advisor was telling him he should cash out his New York pension and invest the lump sum in an annuity.

Cashing in a pension should not be an automatic decision. We might run the numbers for one client and determine that taking a lump sum is the best option; for other folks it might be more advantageous to take out monthly sums in perpetuity.

What we would never do, however, is consider a pension issue without taking into account every single detail of a client’s financial situation. And, in this case, the gentleman’s advisor was overlooking several significant details: his State of New York pension has a very nice cost of living allowance that grows over time and, by taking the monthly 100% survivor option, he and his wife would be set for life.

Our analysis determined that this gentleman’s best course of action was to take the pension as a monthly source of income to supplement his 401(k) and IRA withdrawals.

Without knowing the particulars of this gentleman’s arrangement with the first advisor – the one who told him to cash out his pension and invest in an annuity – my guess is that theirs was not a fiduciary relationship. And although the recommendation to purchase an annuity may have been suitable, it sounds to me like the advisor was acting in his own best interest: the commission potential.

Enjoying the real advantage.

Did our advisors’ analysis above result in a financial advantage for us at Keen Wealth? No, not financially. But that’s to be expected! Because we always apply the fiduciary rule, oftentimes the real benefit for us is the integrity and trust we foster with our clients and with our community. The benefit for us is helping to educate and reassure people who are looking for advice they can count on. The benefit for us is going on a lifelong journey with clients and seeing them thrive in retirement.

That’s why I continue to be such a strong believer in the fiduciary standard. It’s helped me build a firm and a team that I’m proud of, and it’s helped my clients achieve long-term financial success.

Bill Keen on the Fiduciary Standard... 

“The benefit of the fiduciary standard for us is the integrity and trust we foster with our clients and with our community."

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About Bill

Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request. Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.

The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.

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