I hope your January was a good start to 2018. I read an article recently referring to the third Monday of January as “Blue Monday: The Most Miserable (Planning) Day of the Year.” That certainly got my attention as I’m a planner by trade (and by personality my wife and others would say).
Why is that Monday so bad? Well it does make sense to me that the third week is quite hard for any weekly goals set. Getting motivated for two weeks isn’t too hard. But week #3? That’s hard. Maybe just acknowledging this will help some of you give yourselves a break, get back on the saddle and make the progress you desired for this year. Now to our topic…
The financial services industry has gone through some significant changes the past few years, particularly as it relates to advisor products, services and compensation. Many would say the industry began with stock brokers in the 1970’s. If you wanted to buy stock of a particular company, you would call your stock broker and pay a commission. Since then, insert the discount brokers: Scottrade, e-Trade, etc. You can do your own research, buy the stock(s) you want, and pay far less in commissions.
Then mutual funds became popular… particularly in the 1990’s. To have access to certain mutual fund families, you had to go through a licensed financial advisor who got paid a commission. Later on, came the “online mutual fund supermarket” as one advisor calls it. You no longer had to go through an advisor to access top-notch mutual funds.
Fast forward to today, our industry is working through significant legislation initiated by the Department of Labor. In short, advisors who work with clients’ retirement accounts are legally now fiduciaries with the exception of some accounts set up prior to this law. What does that mean? Simply put, advisors must put the clients’ interests above their own. I know what many readers may be thinking: “Wasn’t that requirement already the law?” Well, the short answer is “no” depending upon the setup for the advisor.
So what about us? “Us” being the Rivertree team. Know that we have always operated under the mandate to put our clients’ interest above our own. One way we have done this is by being an independent company. What does that mean? No quotas. We never want to have a conflict of interest when making recommendations simply to meet a quota.
What’s another way? All current Rivertree advisors have accountability to a certification board to operate in a fidiciuary capacity to clients. We did not need a law to make us do this. We wanted to have this additional accountability and have it through Fi360® (Brent and Jonathan) and the Certified Financial Planner® Board (Scott).
In addition, advisor compensation has been under additional scrutiny…and it needed to be. Clients need to know how advisors are paid, whether it’s by fee, commission or both. Which method is better? Well it depends. Our team sees the benefit of having both options available as one size doesn’t necessarily fit all.
For example, larger investment accounts can benefit from a fee-based management that involves multiple money managers using different strategies and investments. Additional oversight and accountability can also add value. However, we believe some accounts benefit from commission-based strategies where fees are less over the long run. The clients’ goals can be better accomplished utilizing this method.
Once we meet with prospective clients, listen to their goals, and gather their information, we fully disclose the compensation structure we believe makes the most sense for them rather than giving them a long list of “potential” fees and commissions. Prospective clients can then ask additional questions and make sure they have a full understanding.
In summary, our industry is shifting to a model of less-conflicted compensation. We have been ready for this change.
As always, please let us know if we can be of service. It would be our pleasure.
Scott is the founder and a partner at Rivertree Financial Planning. Scott and his wife Helen currently reside in Jackson, MS with their three children Artur, Taylor, and Molly. They are members of Redeemer Church, PCA in Jackson.