Can You Trust Your Advisor? | Berry’s Bites

Michigan Certified Elder Law Attorney (CELA) Christopher J. Berry, talks about bad experiences families have had when they work with a financial “professional” who really isn’t in their corner.  There is a difference between a fiduciary standard and a suitability standard.  Also, he discussed the time frame of investments and how the as you age, your investment may become more conservative.

A bunch of red flags were raised in this situation where an advisor placed a family in a high risk, high reward limited partnership that ended up losing 40% of it’s value.  First of all that is questionable as an investment type.  Second, this was a limited partnership that the advisor, himself created!  Talk about double dipping and conflicts of interest!

Can You Trust Your Financial Professional? | Transcript:

Welcome. Today’s Berry’s Bite is going to be about advisors behaving badly. Unfortunately, it’s one of the things that I’ve seen in my profession, doing this over 10 years now, is that a lot of these financial professionals don’t always have a client’s best interest at heart. In fact, a lot of them don’t even owe any type of fiduciary duty or fiduciary responsibility to act on behalf of their clients, which are surprising to a lot of the clients. That’s why one of the things we believe in is what’s called the Trusted Counsel Advantage. That’s if you’re working with an attorney, as an attorney you’ve probably heard of attorney, client privilege and the fact that an attorney always has to act in your best interest. We have an actual duty to act in your best interest.

First, is a lot of the financial professionals out there only have what’s called a suitability standard. What that means is whatever they sell you has to be suitable for you. Meaning if you were to walk into a butcher shop, the butcher has to sell you meat that’s suitable, meaning it’s not rancid, meaning it’s not bad, it’s not going to make you sick. There’s a difference between something that’s suitable for you versus whether it’s the best for you.

For example, my role would be to, if you were to walk into that butcher shop, maybe instead of telling you to walk into that butcher shop, my role as an attorney might be to say, “Hey, don’t walk into that butcher shop. Maybe you should go have a salad.” Right? Granted, I love meat, I love bacon just like the next person, but sometimes there’s a right spot for that. Unfortunately, there’s a lot of financial professionals out there who just don’t have client’s best interests in heart. Whether they’re selling high commission annuities that make no sense, where their only tool is a hammer and everything looks like a nail, or unfortunately, the most recent example I’ve seen is that a woman in her 80s, this financial professional put her into a limited partnership, which is basically like a hedge fund.

If you’ve heard of the Bernie Madoff’s of the world, it almost reeks like a Ponzi scheme. I’m not going to go as far as to say it was that, but it was this 80-year-old woman who really, based on her timeline, her volatility tolerance, there was no reason she should have been in a limited partnership, which is like a hedge fund. This limited partnership basically invested in a bunch of options and cost the family over 40% of the investment. Adding insult to injury, this financial professional, when he sold this family this limited partnership not only was it I think inappropriate for her situation, but also it was a limited partnership that he created. Talking about best interests, whose best interest did that financial professional really have at heart? Was it the client’s, who’s this 80-year-old woman who and the family, had no idea really what they were getting into? They’re just sold this bill of goods, that hey, this thing might perform, but unfortunately, it didn’t and it took a 40% hit.

That’s probably the most egregious situation. I’ve seen some other ones in the past where I’ve seen financial professionals write them self into estate planning documents and invest the money as if it was their money, but sometimes it just … I scratch my head to think that there’s people out there that can sleep at night, let alone not act in their client’s best interest. One of the things to always ask your professionals is what is their duty to act in your best interest? As an attorney, no matter what role I serve for my clients, I always owe them, what’s it called? Attorney/client privilege, so we always have to act in their best interest.

Hopefully, that was helpful. Something that’s important to understand and especially with these Department of Labor rulings, they were going to have a lot of financial professionals have to operate from a standpoint of a fiduciary duty, but unfortunately, it didn’t pass, so a lot of financial professionals out there are still operating from, at the very least, the suitability standard and sometimes some of them are even violating that, like the situation I described. Take care until the next Berry Bite.

Castle Wealth Group Legal in Media

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