Aptus' Hierarchy Of Financial Needs

There are many reasons to be leery of traditional financial advisors. Many sell insurance, stocks, bonds, mutual funds or other financial products, and—as you might imagine—are biased toward selling their own proprietary products. These are the folks fighting the Department of Labor’s new fiduciary rule, slated to go into effect June 9, that could theoretically curb some of the worst abuses in the industry by requiring advisors to act in the best interests of clients. It shouldn’t be controversial to do what’s best for people, but insurance brokers and stock brokers—who have thrived on commissions generated from products that are theoretically “suitable” for people but not necessarily in their best interest—have been against the change.

Unfortunately, advisors can make small changes to their business model—leaving many conflicts of interest intact—and be able to call themselves “fiduciaries.” While financial advisors continue to fight the DOL rule, it ultimately benefits them. Most will switch to a fee-based arrangement and charge their clients based on the percentage of [your] assets they manage. This creates another somewhat less obvious conflict in that they are unlikely to recommend financial decisions—like debt reduction—that put [your] assets to work elsewhere. They might not be able to sell inappropriate whole life insurance to people as easily, but the wolves will be in sheeps’ clothing and still have the ability to steer participants toward poor choices.

There is one more important reason to be wary of traditional financial advisors. Because of the historical focus on product sales and the current focus on asset aggregation, most traditional financial advisors concentrate on investment portfolio construction, asset allocation and securities selection. We think they miss most of what contributes to your overall financial well-being. We believe that financial counseling needs to address a much larger portion of what we think of as the Hierarchy of Financial Needs (see below), including household budgeting, tax issues, student loans, mortgages, healthcare costs, college savings and, yes, investing. There’s an old saying that diagnosis without examination is malpractice, and we believe that investing without comprehensive financial planning is equally ill-advised.

The debate about the DOL fiduciary rule has shined some light on the abuses in the industry and started the ball rolling toward real reform. Our firm is one of the few non-conflicted advisors in the industry. We sell no products. We charge by the hour. We are fiduciaries not just in name, but in the truer sense of removing all conflicts of interest from our business and focusing solely on what’s best for our clients. Ultimately, we think this is where the world is headed.

Tim Quillin