Watch out if you are working with an investment advisor that calls themselves a broker, Insurance, or fee-based advisor.

In the world of financial services, the term "fiduciary" is often bandied about recklessly. However, a recent investigation by Marc Alan Wealth Management has uncovered a disturbing trend: many investment fee-based advisors, insurance agents, and brokers incorrectly refer to themselves as fiduciaries despite having the capacity to accept commissions.

At the heart of the issue lies a fundamental misunderstanding of what it means to be a fiduciary. A fiduciary is an individual with a legal obligation to act in their client's best interests while minimizing conflicts of interest. In the context of financial services, this means that a fiduciary advisor cannot accept commissions or other forms of compensation that may influence their recommendations. Most investment brokers and insurance agents can only receive commissions, so their not being a fiduciary is obvious. When agents refer to themselves as fee-based, it becomes less clear.

The most confusing of the investment agents are the fee-based advisors. A fee-based advisor is a financial professional who receives compensation for their services in the form of fees, commissions, or a combination of both. This type of advisor may earn commissions from selling financial products, such as insurance policies, mutual funds, or securities, in addition to charging clients a fee for their advisory services. While fee-based advisors may provide valuable guidance and expertise, it is essential to distinguish them from fee-only advisors, who receive compensation solely from the client fees and do not earn commissions from product sales. The key difference lies in the potential conflicts of interest that can arise when an advisor's compensation is tied to the sale of specific products.

Unfortunately, many fee-based advisors are wearing two hats, acting as both fiduciaries and commissioned agents. This dual role creates a clear conflict of interest, as these individuals are incentivized to sell products that generate higher commissions rather than those that are in the best interests of their clients.

Marc Alan Wealth Management's investigation revealed several troubling issues with fee-based advisors. One common practice was the payment of commissions exceeding 5% of the investment amount. Most often, many of these mutual  funds sold have the letter A at the end of their name. The products charge a large upfront fee hidden in the product, so often, the charges are not shown under the fees section on the client statement. These commissioned funds also have ongoing kickbacks to the sales agent called 12-b1 fees. Due to the high fees on these investments, regulators disallow the agents to bill additional management fees outside the product. But these commissioned agents have found a way around that. Our investigation uncovered "double dipping" instances where the highly commissioned investments were later converted to a commission-free share class, allowing the agent to bill the client twice for the same service and their highest possible fee rate. The fee-based agent billed their client as a salesperson to get a giant commission and then decided to act as a fiduciary to maximize their fee. This practice not only violates the fiduciary standard but also forces their client's investments into mutual funds that pay them unwanted distributions, resulting in additional taxes being paid by the client. The practice of wearing a salesman cap and an allegedly fiduciary cap creates a significant conflict of interest and massive confusion for their clients.

Perhaps most disturbingly, many clients were unaware of these practices, leaving them vulnerable to financial exploitation.  If you ask the advisor if they are a fiduciary they most often will reply yes but the question is when are they a fiduciary and when are they not a fiduciary. As one client told us, "I thought I was working with a fiduciary advisor, but it turns out they were just trying to make a quick buck off of me." Unfortunately, clients place too much trust in these advisors and only learn of the issue in hindsight, and most often, it requires the assistance of Marc Alan Wealth Management, which offers a complimentary quick look or a more in-depth review for a one-time fee >>through our Find & fix services. Before working with Marc Alan Wealth Management, the fee-based, broker or insurance advisor clients would be only aware of the symptoms of the problem, such as:

1. High taxable distributions from mutual funds that the advisor incorrectly claims are unavoidable.
2. Owning many individual stocks everywhere and paying taxes on the trades.
3. Owning low-yielding municipal bonds or municipal mutual funds.
4. Excessive ownership of insurance products with the ploy of avoiding taxes.
5. Owning cash that is paying too little and generating unwanted taxes.
6. Owning bond funds that never seem to make any money.
7. Lack of growth over many years.

When you remove the fee-based advisor, broker, or insurance agent, some or most of these can be easily resolved. >>Message Us For A Free Quick Look  for a deep dive with step by step actions to take >>try our Find and Fix

To identify whether an advisor is truly a fiduciary, the investor must ask a simple question: Can the advisor collect a commission from any product they sell? If the answer is yes, it is likely that they are not a fiduciary. As the Securities and Exchange Commission (SEC) has stated, "A fiduciary cannot receive compensation that is contingent on the sale of a particular security."

In conclusion, the proliferation of investment fee-based advisors, insurance agents, and brokers incorrectly referring to themselves as fiduciaries is a serious issue that requires immediate attention. Unfortunately, it is very confusing for most investors, and it allows these agents to cash in on misinformation. It is crucial to be aware of these practices and demand their advisors' transparency. At Marc Alan Wealth Management, we are a Fee-Only Advisor and are committed to upholding the highest standards of fiduciary duty, and we urge others to do the same.

Recommendations for Investors:

1. Ask your advisor if they can collect a commission from any product they sell. If the answer is yes, it is likely that they are not a fiduciary.
2. Verify that your advisor is registered with the SEC or your state's securities regulator. Marc Alan Wealth Management can help identify if your advisor has any regulatory marks against them; we are consistently surprised at what we find on an ongoing basis. >>try our Find and Fix
3. Review your account statements carefully to ensure that you are not being charged excessive fees or commissions. If your investment ends with the letters A, B, or C, seek the assistance of Marc Alan Wealth Management to help identify the hidden fees.
4. Consider working with a fee-only advisor, who is prohibited from accepting commissions and is therefore more likely to act in your best interests. Fee-based is not the same thing as fee-only! Do not get these confused; ONLY is the keyword to find. You can also use your fee-only advisor to help you police your other agents.

By taking these steps, you can protect yourself from the pitfalls of fee-based advisors, insurance agents, and brokers and ensure that you are working with a trusted and competent fiduciary advisor. Trust is critical, and you need an advisor who is legally loyal to you, such as a fee-only advisor. 

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