Ninety-eight percent of insurance brokers do not know how to use life insurance optimally. That, anyway, is what one reader wrote in to tell me. I chuckled as I thought to myself, “You could substitute any profession for 'insurance broker' – lawyer, salesperson, politician, etc. – and that statement would still ring true.”

Sure, I laughed a little, but it wouldn't be funny to realize I'd been misled into investing in something only marginally advantageous when there was a better alternative available.

Caveat emptor– let the buyer beware – has been an underlying theme in several of our recent Money Forever premium issues. It's a prudent thought to keep in mind when plunking down your money for any number of alternative investments, such as an annuity or reverse mortgage, and when selecting a professional financial advisor.

It's a warning I heard loud and clear while reading an article published by The Motley Fool highlighting the pitfalls of using a stockbroker as a financial advisor. The authors gave solid examples of advisors who were supposedly helping their clients by investing their money in high-fee mutual funds. Those same funds paid high commissions and bonuses and gave out incentive packages with trips, etc. to the advisors who sold them.

This became the jumping off point for the February issue of Money ForeverFinancial Advisors Should Serve Only One Master: The Client – and I would like to share a few tips from that issue today.

Not All Financial Advisors Are Subject to the Same Standards

Horror stories like those described in The Motley Fool article happen partly because there are two basic standards of care in the financial-services industry.

  • Fiduciary Duty. Advisors with a fiduciary duty are required to put your interests first, even at their own expense. Fiduciaries owe their clients the highest standard of care. They must indeed serve one master – the client – putting the client's interests ahead of all others.

Whether you are a large or small investor, this is by far the most desirable relationship. A CFP® (certified financial planner) is someone who has achieved a recognized level of expertise and has been awarded the designation through the Certified Financial Planner Board of Standards, Inc. They have a fiduciary duty to their clients while engaged in financial planning. There are also certain professional associations such as NAPFA (The National Association of Personal Financial Advisors), that require their members to act as fiduciaries for their clients as well.

  • Suitability Standard. Advisors subject to the suitability standard owe their clients a lesser standard of care than fiduciaries. They may guide clients to investments suitable for their investment objectives, comfort level, net worth, risk tolerance, and age.

    This is generally the threshold standard of care for a stockbroker, an advisor working for a company that handles mutual funds, or a bank selling client financial services.

The suitability standard does not prohibit an advisor from investing a client's funds in a mutual fund charging 2% fees rather than a cheaper alternative, say one charging 0.5%. As long as the fund was suitable to your investment needs when the advisor recommended it, he is in the clear. Where they can get in trouble is for acts such as putting a 68-year-old widow entirely in speculative tech stocks or junior mining companies. Not only would these investments not be in her best interest, they are also not suitable for a retired widow.

Much of the discussion in The Motley Fool article was about stockbrokers, who do not owe their clients a fiduciary duty. These stockbrokers guided their clients into mutual funds with high fees and commissions when there were other funds with much lower expenses that might have been performing better.

Nevertheless, while understanding the different standards of care and what professional certifications mean is a good starting point for selecting an advisor, there are still some gray areas. Integrity is integrity, no matter where an advisor works or what fancy acronym he has after his name.

Hang on a Minute!

Don't we always want to do business with someone we trust, someone who will offer ideas and products that best suit our needs? Yes, of course. And that holds true whether we're buying car insurance or an annuity, and whether we're seeking financial or medical advice. It's what we want when we deal with any professional who should be more knowledgeable than we are in an area where we need help.

So are there still trustworthy folks out there in 2013? Absolutely! Vedran Vuk, our senior research analyst, was quick to remind me that financial advisors are all salespeople. In my book, that's not such a bad thing.

Not Professor Harold Hill

I trained salespeople all over the world for 35 years and worked with 40 of the Fortune 500 companies in the process. As a general rule, the top 20% of salespeople are responsible for 80% of sales.

At one point, several of my clients funded a study to find out what made their top salespeople different from the others. I traveled with these super-salespeople to pinpoint the attitudes and habits that set them apart. If I could identify what made them extraordinary, then perhaps we could build a training program to elevate the good but mostly ordinary salespeople.

During this study, I quickly discovered that it made no difference what they sold; the extraordinary salespeople all did the same thing. I recall one in particular – a salesman who sold plastic pellets, a fungible commodity – for a Fortune 500 company. I met the president of one of his largest clients and asked why he did business with this salesman's company even though he knew its prices were a bit higher than the competition's.

He went on to tell me a story. While he was having a casual lunch with the salesman, he complained that his company's healthcare costs were skyrocketing. The salesman listened intently and said, “I think I can help you.”

The salesman went back to his own company, found the person responsible for its healthcare costs, and asked if he would give his customer some ideas for saving money. He set up the meeting, and the end result was that his client saved over $1 million by implementing some of the ideas presented. On top of that, the salesman also brought in resources from his own company to help his client become ISO certified, which also saved a lot of money and improved the quality of its product.

In a nutshell, this salesman, at his own choice, acted as a business consultant. The plastic pellets he sold were almost a secondary consideration. No one would dare dump this salesman's company as a supplier. He saved his clients too much money by matching up his resources with their needs.

In my travels with the top salespeople, they were all doing the same thing: business consulting. They dealt with high-level management and helped solve their problems. In exchange, their clients were loyal and continued to buy from them.

This indeed is also how truly independent, professional financial advisors operate. They have a lot of product-specific knowledge, but they put their clients' big-picture needs first. And if a client has a particularly thorny issue, they will consult a specialist, maybe an estate-planning attorney or an insurance expert. Just like the plastic-pellet salesman, they elevate themselves above average-Joe financial advisors by looking out for their clients' overall best interests. This global, client-centric approach is what keeps clients coming back.

Integrity, my friends, is the name of the game. I have actually heard stories of salesmen who were offered 100% of a client's business and turned it down. Why? Because they were not confident that their supply could keep up with their clients' needs.

The top salespeople act as though they are fiduciaries, regardless of what they sell or what technical background they have. Who they are and how they do business is what sets them apart.

Can We Find All This in an Ordinary Stockbroker?

Many folks rely on their stockbroker as a financial planner. My wife and I had a stockbroker who was an excellent financial advisor and served our needs well. When she was 55 years old, a big-name brokerage firm recruited her with a nice incentive plan. As part of her contract, she insisted that she be allowed to recommend whatever products were right for her clients. She didn't want to be required or pressured to sell the company products. She was so good and had such a large client base (no wonder) that the company agreed to the deal.

So yes, they are out there. If you've found someone similar, there's no need to mess with a good thing.

My real message is simple. Many of the investment products a good professional advisor can offer are incredibly complicated. They truly need to be tailored specifically to an individual's needs. You and I might both need glasses, but our prescriptions are probably quite different, and only a real doctor can prescribe the right lenses. The same holds true for an advisor recommending financial products.


The Money Forever team is here to help you sift through the rubble and find the exceptional salespeople. If you'd like to receive more information on finding an advisor to prescribe the right financial solutions for you, please check out the February issue of Money Forever. If you are not already a subscriber, you can still access this issue by taking advantage of our 90-day trial subscription.

And while you're at it, don't miss Vedran's Money Forever portfolio update in our March issue. He's earned some bragging rights with the six dividend-paying stocks in our portfolio; they have all increased their dividends since being added.

On the Lighter Side

I'd like to thank to Alex Daley, editor of Casey Extraordinary Technology, for filling in last week. His generation seems to get it, and I'm glad to know that today's professionals are getting serious about saving for retirement.


We are still enjoying the Arizona sunshine and have managed to take in a few spring training games. On Friday we watched the Cubs play the Japanese national team, which is also competing in the World Baseball Classic (WBC) this month. While the WBC is not a huge event here in the United States, over half of Japanese homes tune in for the games.

They certainly had a lot of fans in the stands Friday, including four who pounded rather large, noisy drums throughout the game. They certainly are passionate fans – something I rather admire.

And finally…

Subscriber Chip S. was kind enough to share some clever quotations.

  • Horse sense is the thing a horse has which keeps it from betting on
    people. (W.C. Fields)
  • Once in the wilds of Afghanistan, I lost my corkscrew, and we were forced to live on nothing but food and water for days. (W.C. Fields)
  • Remember in elementary school, you were told that in case of a fire you
    have to line up quietly in a single file line from smallest to tallest.
    What is the logic in that? What, do tall people burn slower? (Warren Hutcherson)
  • It's always darkest before dawn. So if you're going to steal your
    neighbor's newspaper, that's the time to do it. (Unknown)
  • If you think that nobody cares if you're alive, try missing a couple of
    car payments. (Unknown)

And my favorite…

  • If life were fair, Elvis would be alive and all the impersonators would be
    dead. (Johnny Carson)

Until next week…