Why Fiduciary Matters More Than Ever

Today, I attended a National Association of Personal Financial Advisors (NAPFA) study group revolving around ethics. Our guest speaker was Connie Nowland, who is the Market Conduct Examiner for the State of Utah Insurance Department.Why Fiduciary Matters More Than Ever

Mrs. Nowland shared many cases that intensify how proud I am to be a fee-only financial advisor who accepts a fiduciary responsibility to always act in the best interest of my clients. Everyone has heard these types of stories: the insurance salesman who convinced a couple in their 70’s to take out a home equity line of credit on their paid-off home so they can purchase the annuity he was selling (the couple has now lost their home), or the annuity salesman who sells products with a 22-year surrender period attached to them, completely removing the liquidity from the investment.

(On a side note, Connie made clear that Utah State Law changed in 2002 making it illegal to sell an annuity with a surrender period exceeding 10 years and the surrender charge must decrease by at least one percent per year. Thus, if anyone tries to sell you an annuity that doesn’t meet these requirements, REPORT THEM!)

However, the most alarming news communicated in the meeting is how understaffed Utah’s Insurance Department is. Most financial advisors do not accept a fiduciary responsibility to their clients. These financial planners are held only to a suitability standard, meaning they must make recommendations that are suitable for their clients (a dramatic difference from always doing what is best for clients). I always took comfort in knowing that consumers at least had regulatory agencies keeping a close eye on these salesman, but here is the real shocker: according to Mrs. Nowland, the State of Utah has never prosecuted anyone for violating the suitability standard. Regulators are simply too understaffed to enforce these compliance issues.

Clearly, a home equity line of credit was not a suitable recommendation for the couple in their 70’s, but the insurance salesman who took advantage of these people was never punished for selling unsuitable products! This would suggest that although most financial planners and consumers believe regulatory agencies will ensure the advisors they work with are acting within the law, the current environment is accurately described as “buyer beware.” Consequently, it is more important than ever to work with an independent fee-only financial advisor who gladly accepts a fiduciary responsibility to always act in the best interest of their clients.

Photo by: Chris Corwin

About the author

Lon Jefferies, CFP®, MBA

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning firm in Salt Lake City, Utah. He is a Certified Financial Planner (CFP®) and a member of the National Association of Personal Financial Advisors (NAPFA). He possesses an MBA and bachelor's degrees in Finance and Marketing from the University of Utah. Lon writes articles for local magazines such as Utah CEO, Business Connect and Utah Business Magazine, and he consistently contributes articles to online magazines such as FIGuide.com and FILife.com (by The Wall Street Journal). Additionally, Lon is an expert author at EzineArticles.com. Lon has been quoted nationally in publications such as the NY Times and Investment News.

Lon can be contacted at (801) 566-0740 or lon@networthadvice.com. Learn more about Net Worth Advisory Group at http://networthadvice.com and visit Lon's blog at http://www.utahfinancialadvisor.blogspot.com.

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