Money in the Middle

Sandwich Generation Talking About Money Up, Down and Across Generations

Are Your Financial Interests First?

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Sometimes the best thing you can do for yourself or an aging parent is to get professional financial advice.  People who handle investing as a full time job can help you understand the options and the trade-offs and work through some of the emotions (or keep you from doing something stupid).

 So as you seek the right person to help you, there’s one question you should ask up front –“How are you compensated for handling my money, making this investment for me, or when I buy this financial product or insurance policy?”

 Here are two two terms you want to understand as you seek financial planning assistance:

 Fiduciary responsibility – which means the advisors must act in your best interest

 Suitability – which means the advisor/agent/broker has deemed the product suitable for you but the product selected does not have to meet the “in your best interest” test.

 Here’s an interview from NPR Marketplace that does a nice job of explaining the difference.  This is one of many consumer regulations that Congress will be tackling when they return next week.  Should brokers be required to meet the “in your best interest” test when they sell you a product?

 It is particularly important to help older adults.  Research shows that as we age we tend to become more trusting, more optimistic and less willing to question.

While the Congress wrangles through it’s debate on the issue, you can be a smart consumer by always asking someone selling you a financial product how they are getting paid and what their commission is. Generally, an advisor with fiduciary responsibility will charge you on a fee basis, hourly or a fee of assets under management.  A broker or insurance agent is compensated by commission (a % of the sale). 

 If they give you a choice, but push one over the other, ask if their commission differs.  It might be the right product for you or it might be a product with a higher commission for them.  If they won’t tell you or dodge the question – then you probably have your answer.  Look elsewhere for an advisor who puts your interests first.

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Written by Laura Rossman

September 1, 2009 at 8:51 pm

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