Financial Planning

The NYT’s article on TIAA proves ‘fiduciary’ may give a false sense of security.

Is your advisor willing to be completely honest, even if it means losing business?

The New York Times reported Thursday that New York’s attorney general has subpoenaed TIAA for information about its sales practices as a result of a whistle-blower complaint. The complaint alleged that TIAA advisors exploited customers’ fears to steer them into more expensive products.

…. the company awards bonuses to sales personnel when they steer customers into more expensive in-house products and services.

Current and former employees who spoke with The Times said TIAA assigned its sales representatives outsize goals that were difficult to meet. Two of these people said TIAA had a saying about creating fear among clients to generate sales: “If they cry, they buy.”

The more complex a product — such as life insurance or asset management — the more an employee earned selling it, the complaint says. Those who questioned management’s demands were “processed out” of TIAA, according to the complaint.

TIAA, or ‘Teachers Insurance and Annuity Association,’ manages retirement accounts for the employees of 15,000 nonprofits, which includes public schools and universities. In the past, they have enjoyed the reputation of being a trusted steward for those accounts. TIAA has marketed themselves as “unbiased” and “conflict-free,” giving their customers the impression they are acting as a fiduciary.

TIAA has previously said it puts its clients first and has maintained that because its 855 financial advisers and consultants do not receive commissions on the products they sell, they are unbiased.

This recent revelation shows that advisors marketing themselves as fiduciaries can still give conflicted advice. Fiduciary advisors are required to put client’s interests ahead of their own. Uniform fiduciary regulation is unlikely to fix the dishonest practices of financial institutions that already have a toxic culture; what is presented as fiduciary advice can still be tainted with conflict. An advisor selling themselves as a “fiduciary” can create a false sense of security for a client that has not done additional checks into the advisor’s credibility.

How can I find a REAL fiduciary advisor?

Jason Zweig, a columnist for the Wall Street Journal and champion for main street investors, published “The 19 Questions to Ask Your Financial Adviser” in August. This is one of the best lists I have seen to help investors find a good financial advisor. However, I would add one additional question to his list. “Are you willing to be completely honest, even if it means losing my business?”

A true advisor should be willing to give the best advice to a client, even if it means the advisor will miss a revenue opportunity. Being known as a trustworthy advisor (which will attract clients in the long-term) should be enough incentive to give the best advice.

The above tweet is from Blair duQuesnay, a New Orleans-based advisor. She illustrates a big problem in our industry. Many “advisors” are salespeople first, and advisors second. You want an advisor that is willing to be honest, even if it means losing the “sale.” Honesty is the primary attribute an advisor should be selling.

Having a “fiduciary” label isn’t enough to hire an advisor. Having a clean BrokerCheck isn’t enough, either. Prospective clients need to get a feel for an advisor’s character. There are a number of ways to do this. One of the best methods is to get a referral for an advisor from someone you already trust and who is a client. Ask them questions about the advisor – Do they feel the advisor actually puts their interests first? Do they have a long relationship with the advisor? Would they recommend the advisor? Do they think their advisor would be completely honest with them if it meant losing their business?

It is also important to get to know the advisor on your own before engaging their services. Have a conversation with the advisor and bring a copy of Jason Zweig’s 19 questions. Does the advisor have a blog where they post original content? Often an advisor’s blog will give insight into how they do business. Are you a good judge of character? What does your gut tell you about the advisor? Do they seem like a someone that will shoot it straight or do they seem like a salesman?