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How to figure out conflict of interest with FA

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  • Avatar Eagleeyes 
    Participant
    Status: Physician
    Posts: 63
    Joined: 03/21/2017
    Disability Insurance

    How does one go about figuring out if a FA has a conflict of interest? I’m sure these guys have to disclose to some agency that they are being paid by certain funds or companies and must disclose that commission or fee…

    Can someone tell me how to go about investigating that investigating that information. Is it possible to find out how much they got paid from these companies?

    #73204 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3604
    Joined: 01/08/2016

    if they are selling something just assume there is a conflict.

    #73208 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4260
    Joined: 05/13/2011

    I’d start with just asking the advisor. If he seems evasive at all in describing how or how much he gets paid, I’d move on.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #73217 Reply
    ChadCFP ChadCFP 
    Participant
    Status: Financial Advisor, Website Sponsor, Small Business Owner
    Posts: 75
    Joined: 10/04/2017

    I agree with Dr. Jim & Peds. Just ask, and if they put up a fight or refuse to tell you, take that as a red flag. For example, we help our clients with insurance (term life and disability) as part of their financial plan, but we spreadsheet numerous carriers and tell our clients how much we are paid.

    Just about everything has some form of commission attached to it from the broker-dealer world and insurance world. If it is a flat-fee agreement or advisory account (ex: 1.00% on assets), that is the best way to avoid commission products, but even there you can still find a conflict of interest.

     

     

     

    Chad Chubb, CFP ® | WealthKeel LLC
    https://wealthkeel.com/wci | Gen X & Gen Y Physicians

    #73224 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7315
    Joined: 01/09/2016

    Check out their ADV. For specific information on how to read and understand the ADV, my blog post on WCI will be instructive.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #73229 Reply
    djohnflatfeecfp djohnflatfeecfp 
    Participant
    Status: Financial Advisor, Website Sponsor, Small Business Owner
    Posts: 203
    Joined: 09/14/2017

    I’d start with just asking the advisor. If he seems evasive at all in describing how or how much he gets paid, I’d move on.

    Click to expand…

    This and ask as many questions until you are comfortable. Either comfortable with staying or leaving.

    Accumulate Wealth, Not Fees - http://forwardthinkingwm.com/

    Daniel P. Johnson, CFP - [email protected]

    #73236 Reply
    Jaqen Haghar, MD Jaqen Haghar, MD 
    Participant
    Status: Physician
    Posts: 166
    Joined: 07/27/2017

    Open a briefcase filled with $1,000,000 and put it on their desk.  Excuse yourself to go to the restroom for a few minutes. When the appointment is over and all of your questions have been answered, return home with the briefcase and count the money.  If less than 1% of the cash is missing, they are reasonably trustworthy and you can proceed with the relationship.

    #73237 Reply
    Dr. Mom Dr. Mom 
    Participant
    Status: Physician
    Posts: 574
    Joined: 02/27/2017

    Stop wasting your time.  Accept a conflict of interest is highly likely.  Even if there is not at the time you do your due diligence, it doesn’t protect you from the fact the situation could change in the future without your knowledge.   Decide if the cost is worth the service.  If not, DIY.

    #73239 Reply
    Liked by Zaphod
    Avatar Eagleeyes 
    Participant
    Status: Physician
    Posts: 63
    Joined: 03/21/2017

    OP here.

    I should have clarified. This FA group manages our practices 401k, profit sharing, defined benefits, cash balance plan.

    Also, several of the partners use the group personally to help them manage their portfolios.

    I am putting together a presentation for the partners to show them we need to switch to a flat fee only planner

    This would be a just another feather in the argument. Documented conflicts plain as day would be helpful

    I can’t just ask because I need proof of the conflicts and how much money they are making from it for the presentation

    Also. As we saw in the americas best 401k thread discussion with zgainers and kon, we saw how zgainers said they have NO financial incentives to refer clients to a particular platform etc. but as Kon showed in their ADV, they have a relationship with third parties which maybe lucrative

    Also please keep in mind, several of the partners have professed their love for these FA. I mean partners are pretty entrenched and don’t want to be proven wrong

    Thanks for the advice

    #73242 Reply
    Avatar Eagleeyes 
    Participant
    Status: Physician
    Posts: 63
    Joined: 03/21/2017

    If only I had a million dollars!!

    #73243 Reply
    Avatar Eagleeyes 
    Participant
    Status: Physician
    Posts: 63
    Joined: 03/21/2017

    This super helpful. I will read and get back to you!

    Thanks Ms Fox.

    #73244 Reply
    Liked by jfoxcpacfp
    ChadCFP ChadCFP 
    Participant
    Status: Financial Advisor, Website Sponsor, Small Business Owner
    Posts: 75
    Joined: 10/04/2017

    OP here.

    I should have clarified. This FA group manages our practices 401k, profit sharing, defined benefits, cash balance plan.

    Also, several of the partners use the group personally to help them manage their portfolios.

    I am putting together a presentation for the partners to show them we need to switch to a flat fee only planner

    This would be a just another feather in the argument. Documented conflicts plain as day would be helpful

    I can’t just ask because I need proof of the conflicts and how much money they are making from it for the presentation

    Also. As we saw in the americas best 401k thread discussion with zgainers and kon, we saw how zgainers said they have NO financial incentives to refer clients to a particular platform etc. but as Kon showed in their ADV, they have a relationship with third parties which maybe lucrative

    Also please keep in mind, several of the partners have professed their love for these FA. I mean partners are pretty entrenched and don’t want to be proven wrong

    Thanks for the advice

    Click to expand…

    Okay, the additional details did help. You can always ask them to use a flat fee agreement (assuming you are not in a commission based account currently). Gives you peace of mind with the flat fee, but also keeps the partners happy because they get to keep their golfing buddies.

    For example, we offer our clients both options with our advisory accounts. If you prefer to pay the AUM fee out of your portfolio, the option is there. If you prefer to pay out of pocket with a flat fee, the option is there. We are not offended when some asks to do it the other way, if anything we are happier since they are more comfortable.

    You will never go wrong asking questions.

    Chad Chubb, CFP ® | WealthKeel LLC
    https://wealthkeel.com/wci | Gen X & Gen Y Physicians

    #73256 Reply
    djohnflatfeecfp djohnflatfeecfp 
    Participant
    Status: Financial Advisor, Website Sponsor, Small Business Owner
    Posts: 203
    Joined: 09/14/2017

    Have you analyzed how much your group is paying in fees for them to manage the retirement-related plans?  If so, how does this correspond when they benchmark the plan?  They should be doing this every 3-5 years to stay compliant with Department of Labor recommendations for best practices.  If you are one of the fiduciaries for your plan you should definitely be requiring the advisor do this.  You can then take their fee numbers and run some simple Excel illustrations of what various fees do to net returns.  This is always eye-opening.

     

    Also, does your plan permit participants to hire their own advisors?  I have several physician clients whose plans are set up this way.  Under this option they can keep their FAs and you can select one that is better suited for you.  Maybe this is a solution that works for everyone.

    Accumulate Wealth, Not Fees - http://forwardthinkingwm.com/

    Daniel P. Johnson, CFP - [email protected]

    #73327 Reply
    Avatar Eagleeyes 
    Participant
    Status: Physician
    Posts: 63
    Joined: 03/21/2017

    I actually need more details looking into how much we are paying them in a yearly basis. Need to sit down with our CFO and find out

    When you say benchmark the plan, I am not sure I follow. What does that comment mean? In the 401k everyone is doing their own thing. One good thing about the 401k is that it has a self directed brokerage window with TD amerotrade. This way I don’t have to use the american funds they have in the platform

    Maybe your comments are more geared to their management of the cash balance plan. That plan has a fixed payout of 3.5 percent. Any shortfalls to be paid for by partners. Lucky for them the market has done well and it’s been easy to manage the account in climate.

    In any case benchmarking the plan is tough. I’m not sure what benchmarks would even be appropriate given the 15 or 20 funds they have is in. I’m sure they have benchmarks but I don’t know if they are cherry picking or what

    #73350 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4260
    Joined: 05/13/2011

    American funds huh. That’s a bad sign.

     

    Tread carefully. Your job may be at stake.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #73376 Reply

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