By Steve Doster | Mission Valley Money

Imagine having a friend you could turn to whenever you had a financial question. Think about how amazing that would be. Not sure how much of a house you can afford? Call your financial friend to walk you through the numbers. Don’t know which investments to choose in your 401(k)? No problem, you have someone to answer that question.

All of us make financial decisions every week. Most often, we do it alone or we ask unqualified individuals to help answer our questions. How comforting would it be to pick up the phone, ask a question, and get an answer that is not only correct, but in your best interest.

Unfortunately, this is rare in the United States. The current regulation structure allows financial advisors to sell insurance and investment products that are not in your best interest.

There are a small group of advisors that follow a fiduciary standard. This simply means that an advisor must provide recommendations that are in the clients’ best interest. There is also a much larger group of financial advisors who are not required to put their clients’ best interest first. They operate under something called the “suitability standard.”

It’s common knowledge that there’s a looming financial crisis of Americans not saving enough for retirement. People have been taught very little about personal finance throughout their lives. If these individuals reach out to a financial advisor that falls under the “suitability standard,” they are likely to be sold expensive products that are not in their best interest.

For example, let’s say there’s an advisor who has two mutual funds he could recommend to you. The first mutual fund has low annual fees and good investment performance. The second fund has high annual fees and poor investment performance, and it pays a hefty commission to the advisor. The advisor, under the “suitability standard,” recommends the expensive, poor performing mutual fund because he wants to earn a big commission; however, it’s not in your best interest to invest in this fund.

Large financial firms argue that a fiduciary standard hurts low- and middle-income investors. They argue that the suitability model allows them to help lower income people that can’t afford fiduciary financial advice.

This is a ridiculous argument. Variable annuities are just one type of product that some financial advisors sell to clients. These expensive financial products have commissions that range between 7 to 10 percent. It’s estimated that $95.6 billion of variable annuities were sold in the United States during 2017. That means investors paid somewhere in the range of $7 billion to $10 billion in commissions to big financial firms and their advisors. That’s hard-earned money people need for retirement.

When you are reaching out for financial advice, it’s important to know there are two types of financial advisors — fiduciary and non-fiduciary. The first question to ask your advisor is if they operate under the fiduciary standard. If they say yes, ask for it in writing. If they say no, then don’t work with them. It’s in your best interest not to!

— Steve Doster, CFP is the financial planning manager at Rowling & Associates – a fee-only wealth management firm in Mission Valley helping individuals create a worry-free financial life. They help people with taxes, investments, and retirement planning. Read more articles at rowling.com/blog.