This week, I’m talking about the fiduciary standard in the world of financial advice. What is a fiduciary and why should you care?

Today, I’m wrapping up the week by talking about the 2 main sources of conflicted advice: 

1. Fees vs. commissions 
2. Sales vs. advice

Last week, I made the mistake of taking my kids to the mall with me. I had to return a sweater to Nordstrom, and after we were done with that I found a pair of pants that I wanted to try on. So the helpful gal at Nordstrom took my pants to the dressing room for me while I looked around a little bit more. I didn’t see anything else I wanted to try on so we headed to the dressing room. When I walked in there were 3 other items the gal at Nordstrom had put in the room for me as well. My 5-year year old is very observant and she noticed the other clothes and asked “Mommy, why did that lady put more clothes in here”. I answered her “because she’s paid on commission, sweetie”. It was an interesting conversation because I had to explain to her what that meant and that she gets paid more if I spend more money. One of the items was a $495 sweater. Because I like torturing myself, I decided to try it on even though there is no way I would ever spend that much on a sweater! 

But if I would have bought that sweater, the gal at Nordstrom would have been paid more and benefited more from helping me out. 

Because I understood her motivations, I was better able to make a good decision about walking out of that dressing room without the sweater. 

The biggest 2 distinctions for financial advisors are fees vs. commission & sales vs. advice. You need to know whether or not your advisor can switch hats, and if they can when are they wearing their fee hat and giving advice in a fiduciary capacity, and when are they wearing the commission hat and selling you something. In this case, when they wear the commissioned salesperson hat, they can be self serving and act in their best interest not yours as long as the recommendation they make is suitable. 

So, take the time to ask the right questions about whether or not your advisor is a fiduciary at all times or not, and then if not, know what to look for when you’re taking advice from them and understand what hat they’re wearing when they give that advice so you can make an informed decision about whether or not you take that advice. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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