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The 1 Question Everyone Should Ask Their Money Manager…

How to start investing

As someone who knows finance well and a son of parents who’ve worked hard to build a nest egg, I feel obligated to make sure that their money is well taken care of.  Maybe you’ve been in this position or you’ve been overwhelmed with the amount of financial products/options available.  It sometimes feels like we would need another lifetime to make one informed decision.  Either way, this article is for you.

In essence, middle class American’s are typically lacking confidence in the investment advice they’ve been provided.  In a world of financial planners with no financial background, it’s a hard task for many of us to find good advice or even be sure this person is qualified. We’ve all seen it…the guy who lost his job last month or spent 17 years in an unrelated field, now wants to handle the money you’ve earned through the years (this has been common in the tax field also a.k.a HR Block or Jackson Hewitt type services).   While prior experience and results are the best indicator for future performance, there is one question you should ask those you are handing over your life savings to.

Are you a fiduciary?  If you ask this to your prospective financial planner or current money manager and the answer is no, move on.  That’s not to say they won’t do a good job.  Barring personal circumstances and relationships, your money may be better in the hands of a fiduciary.  This recommendation is strictly legal.  If your non-fiduciary uncle has compounded your money at 17% percent for 20 years, I’d say he may be a better choice ;).  That being said, he should probably start a hedge fund sooner rather than later. You get the point…

While money coaches and experienced individuals can help you get your money systems in order, only fiduciaries should physically handle your money.  A “fiduciary” is someone who legally needs to put your interest before theirs.  To the surprise of many, not every financial planner is a fiduciary.  Many times, we are being sold financial “products” by a salesman who has passed the broker exam but there is no assurance that his recommended transactions aren’t being processed primarily to line his own pockets.  Events, such as the Madoff situation, have refocused attention of the “Investors Act of 1940”, which created the fiduciary standard.

While fiduciaries are paid by the hour, at flat fee, or a percentage of assets owned, other advisers have more dangerous strategies for your wallet.  For example, some stockbrokers are paid per financial transaction.  It would be easy for them to justify a buy or a sell thereby profiting further on your dime.  The truth of the matter is that no one will ever care about your money as much as you do, unless they have a legal liability to do so.  The stigma of the “per transaction” model has been on its way out over the last few decades.  Many CFP’s don’t use them anymore but BEWARE: that doesn’t mean they are a fiduciary.

Naturally, you’re thinking about how and where you can find one of these people.  Easy, follow this link and search away.  You can locate and adviser near you or find one by name.

Good news, though…the Department of Labor has passed a new law earlier this year expanding the fiduciary duty to many other advisers, beginning in mid-2017.  That being said, this won’t begin without an ongoing fight from its opponents.  See this article for the basics on the new rules, if you’re interested.

So remember the F-word when you’re talking about managing your money.  You just may sleep better at night.

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Eric Estevez
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