fi nancialforum Service Standards T
More Information To learn more about the fiduciary standard of care and to find certi- fied financial planners (who must abide by the fiduciary standard), visit
http://bit.ly/2auYLC7.
44 MILITARY OFFICER OCTOBER 2016
It’s important to understand whether your fi nancial adviser is working as your fiduciary or under the suitability standard. Lt. Col. Shane Ostrom, USAF (Ret), CFP®, explains why.
The word fiduciary seems to be the term of the season in the fi nancial industry. Technically, fi duciary defi nes the stan-
dard of service to which a fi nancial pro- fessional works with clients. Fiduciaries work in a client’s best interest and not in their own interest. However, you might be surprised to learn a fi duciary is not the default standard of practice. Most fi nancial professionals work under the suitability standard, meaning they only have to provide their clients a suitable product. The suitability stan- dard allows professionals to serve their own interests over the client’s, as long as the client’s needs are met. Imagine if all salespeople worked under the suitability standard. For in- stance, can you see a car dealer saying, “I know you have your eyes set on the premium model with the smooth ride, but trust me, you can get by with the harder-riding basic model”? Of course, you would hope your fi nancial expert wouldn’t pitch a suitable product (that could line their pockets) knowing a more appropriate product would be in your best interest. With that said, working with a fi du- ciary does not always guarantee the best outcome. Fiduciaries also might choose to recommend suitable products. I recently spoke to a 70-something member who had a fi duciary advisor pitch him a life insurance product as the answer to his fi nancial objective. Though
the product might have worked, it prob- ably shouldn’t have been the primary option, given it isn’t designed to do what the client wanted and would have to be fi nagled to accomplish the fi nancial ob- jective. Plus, the client did not need the life insurance — the primary purpose of the product, which was expensive and generated a nice commission for the advisor. There are a number of reasons — be- sides the commission — why a fi duciary might suggest a certain option. Virtually every fi nancial objective has multiple solu- tions. But a product might be a better third, fourth, or fi fth option than the fi rst. You have to evaluate which option is best for your situation. Unfortunately, working with a professional under the fi duciary standard does not always provide the sure answer. Generally, the simplest, most cost-
effi cient option specifi cally designed to meet your objective is preferred. How do you know? That’s the tough part of being a consumer in the fi nancial world. But keep in mind, if you cannot adequately explain a product or cost, it is not a positive sign. My suggestion: Stay laser-focused on
your fi nancial objective, keep it simple, and keep costs down. Fiduciary or not, re- member to be your own best advisor.
MO
— Lt. Col. Shane Ostrom, USAF (Ret), is a CFP® and benefi ts information expert at MOAA. Visit
www.moaa.org/fi nancialcenter for other re- sources. Email specifi c benefi t and fi nance inqui- ries to
beninfo@moaa.org.
PHOTO: SEAN SHANAHAN
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