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Making sure that your financial adviser looks out for your interests

Brian Luster
Last month Greg Smith, an executive with the investment firm Goldman Sachs, wrote an op-ed for the New York Times in which he announced his resignation and offered scathing criticisms of his former employer. Among other reasons for resigning, Smith felt many of his former colleagues were not acting in the best interest of their clients. "It makes me ill how callously people talk about ripping their clients off," he wrote.

Steven Abernathy
Smith's article serves as a wake-up call to both Wall Street and Main Street about the responsibility of financial professionals toward their clients' interests. The problem is that many—although certainly not all—financial salespeople are compensated based on the fees and commissions they generate. This is true across the board, from the largest wealth management firms to independent financial advisers and brokers.


So how do you determine who is best- suited to manage your wealth? Smith does not use the word "fiduciary" in his article, but it is a vital concept for today's investors. According to a study our firm conducted, fewer than 2,500 of the more than 1 million people who call themselves financial advisers are registered fiduciaries, meaning they are legally bound to act in the best interest of their investor clients.

When confronted with a range of titles, be it financial adviser, consultant, or wealth manager, how can you be sure the person you hire always will be acting on your behalf? What makes the question especially confusing is that some brokers will say they are able to act as both fiduciary and salesperson, seamlessly alternating between each role (typically depending on which role pays the most) without taking 100% fiduciary responsibility 100% of the time. So how can you know whether an adviser who says he or she is acting as your fiduciary is looking out for your best interests, rather than merely trying to sell you the latest financial product?


Here are three steps you can take to ensure that your financial adviser is acting solely in your best interest:

• Require all financial professionals working for you to sign a fiduciary agreement. Each adviser must be willing to sign a "fiduciary oath" stating that the advice he or she provides is in your best interests—even if those best interests are not in line with their best interests (meaning the advice won't necessarily yield the greatest amount of money for them). Ask your attorney to draft such an agreement, and have it notarized.

• Ask the financial professional how he or she is compensated. A true fiduciary will not accept any fees (beyond the standard advisery fee). That means no referral fees, commissions, or rebates of any kind.

• Thoroughly vet the advisers you hire. Ask for references, then ask the references to assess the adviser's performance—whether he or she is an honest, competent, professional investor and money manager.If your adviser is honest but not competent, he or she eventually will send you to the poorhouse. If your adviser is competent but not honest, he or she will part you from your money. Look for an individual or firm with at least 10 years of performance that has been reviewed by an independent accounting firm.

These simple steps will show who is truly willing to act as your fiduciary and look out for your best interests, come what may.

The authors are the founders of the Abernathy Group II Physician Family Office, an independent wealth advisory firm in New York, New York, that serves physicians exclusively. The ideas expressed in this column are theirs alone and do not represent the views of Medical Economics. If you have a comment or a topic you would like to see covered here, please e-mail
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