UlTImATE SUccESS GUIdEto pay the bills every month. Going back to the medicine anal-
ogy, penicillin may be the miracle drug, but how well does it fix
a broken leg? We want to pick the right medicine for the right
ailment.E. How do you know if your advisor’s advice is designed to benefit
you or to benefit their pocketbook?
There is a little known fact in the world of investment advice
about how we are governed. There are actually two different
standards that people in my business are held to. One is a fi-
duciary standard and the other is a suitability standard. In lay-
man’s terms here is the difference. A suitability standard only
requires that an investment be “suitable” for the person making
the investment. One main way this is determined is whether it
falls within your risk tolerance.
Your risk tolerance is typically defined by the answers you give
to a questionnaire that you may have paid little attention to at the
time you answered the questions. This will determine whether
you are “conservative” “moderate” or “aggressive.” As long as
the investment falls within your category then chances are it’s
considered suitable. On the other hand, some people are held to
a fiduciary standard. This means that we are required to actually
do what is in your best interest, not just what is “suitable.” This
is a much higher standard of conduct and, as you may imagine,
comes with considerably more liability on our part. We have
to prove that what we recommended is actually best for you. If
you don’t know whether your advisor is a fiduciary or not, just
ask. If they give you an answer that sounds like a politician run-
ning for office, then chances are they aren’t!
F. How can you keep your advisor from sailing to Bora Bora with
all of your money? (Or “how not to get Madoffed!”)
There have been innumerable articles on this topic since the
crash of 2008, but I’m constantly surprised that very few people
actually understand how to protect themselves from this. It’s
really very simple. You must make sure that your advisor has a
3rd party custodian where your money is held. This means that
your money isn’t kept at an account in your advisor’s name or
the name of their company. Madoff’s client wrote checks and