Mullooly Asset Management

Fiduciary Fee-Only Financial Planner | Investment Advisor in Wall, NJ

fiduciary

Nobody Cares How Much you Know, Until they Know How Much you Care

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A few months back during Mets pregame, Bobby Valentine was interviewed while honoring the recently deceased Rusty Staub. Bobby V said that Rusty was the first person who ever told him; “Nobody cares how much you know, until they know how much you care.” Rusty was telling Bobby V that while he was a highly skilled technical baseball coach, he needed to show the team that he actually CARED more about them.

When players know the coach genuinely cares about them and the team, they tend to be more receptive to the coach’s teachings.

Now, how do you show someone that you care about them?

  • Ask questions about their well-being, personal life, goals, fears etc.
  • Actively listen to their answers
  • Unconditionally guide them toward where they want to go

Are we talking about baseball or the financial planning process?

Financial Planning Process

The wisdom Staub imparted onto Bobby V lies at the very core of the financial planner-client relationship.

The financial planning process inherently creates a bond between planner and client (Steps 1-4). By going through discovery the planner gains an interest in wanting the client to succeed.

The hardest part of the financial planning process is the actual implementation and monitoring of the recommendations (Steps 5-6). This is where the planners have to let go a little bit. It’s mostly on the client to do this.

It can be frustrating for planners to see a client deviate from the plan. This is where it is critical for the client to know how much the planner cares. Maybe by giving the client a little more care and attention, the client will be more willing to follow the planner’s recommendations.

The finance industry is doing everything it can to drive emotion out. I agree it’s best to eliminate emotions from most decision making processes. But, I also believe the emotional connection between planner and client is a huge part of what makes financial planning so very valuable.

 

 

 

Fiduciary Rule reaches a potential dead end

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The Fiduciary Rule, proposed by the Department of Labor (DOL) several years ago, and signed into law in April 2016 may be meeting a dead-end.   And the Rule may be snuffed out before most individual investors even learned about it.  But individuals ought to get an education in what this rule is all about.

We believe in educating investors.  Educating our clients (and our prospective clients) makes them better advocates for how we can help individuals manage their investments — and better prepare them for their future.

For fifty years, if you needed to buy a suit in the NYC Metro area, Sy Syms was your man. Now, stay with me here.  Syms did his own commercials, always ending with their slogan, “An Educated Consumer is Our Best Customer.”  When it comes to investing, the same holds true.  And in the name of education, there is an important lesson taking place right now.

The Department of Labor proposed a “Fiduciary” rule, and this was put into law by the DOL in April 2016.  Implementation began just a few months ago, in mid-2017. The concept behind the fiduciary rule is straightforward: folks giving investment advice and guidance should be held to a fiduciary standard of care.

Meaning, investment advisers (who are regulated by the SEC or state securities regulators), are required to always put their client’s interests above their own.  But the standard for brokers is different: legally, brokers must recommend investments that are “suitable” for their clients. There is a distinct difference between “suitable” and “prudent” recommendations and advice.

Industry leader Michael Kitces writes:

“The Investment Advisers Act of 1940 came in the aftermath of the crash of 1929 and the Great Depression. It was essentially created to be a crackdown on much of the investment advising abuses that happened during the booming 1920s. The purpose of the rule was in large part to create a distinction between salespeople who were brokers, and those who really formally gave ongoing investment advice for compensation. They advised on investments, which meant they were advisers…”

Recently, a three-judge panel of the Fifth U.S. Circuit Court of Appeals ruled against the Labor Department. And according to attorney Daniel Viola of Sadis Goldberg wrote, “Opponents of the Rule raised concerns that the Rule would have unintended collateral effects that would render investment and retirement services more costly and potentially inaccessible for certain individuals.”

Is this the End for the Fiduciary Rule?Fiduciary Rule at Dead End?

When the news broke, Barbara Roper, the Director of Investor Protection, with the Consumer Federation of America (CFA) also added “…(t)he debate is not over how to pay for advice. The debate is over whether brokers’ sales recommendations constitute advice. Unless they are held to a fiduciary standard, they don’t, and regulators need to stop pretending otherwise.

Over the following days, the tweets from Kitces and Roper were clear in their opinion:

It’s important that investors understand how their adviser gets paid, we’ve discussed this before, here and here.  And it’s equally important to understand how compensation arrangements can make for “bad decision environments.”

We’re *not* saying working with a commission salesperson is wrong.  For some, this may work.  It’s important to KNOW upfront – no surprises.  When I began Mullooly Asset Management in 2002, it was my belief this could be a much longer path to profitability, but I also firmly grasped the understanding a fee-only fiduciary structure would be a much better environment for clients.

Acting In the Client’s Best Interest

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Should acting in the client’s best interest be a requirement of all brokers and advisors?

This topic stresses that individuals realize the differences between brokers and advisory firms, and the differences between “financial advisors” and “investment advisors.” There are important differences!

Many investors believed “always acting in the client’s best interests” already WAS the case, that their broker already had a requirement to do so.*  However, the Department of Labor regulations, enacting this “fiduciary standard of care,” was delayed by the Trump administration. And some in the industry feel this fiduciary rule may get pushed off the table entirely. For now, the DOL regulations are slowly being implemented. Full implementation does not take effect until mid-2019.Client's Best Interest

However, Maryland has jumped ahead of the federal government when it comes to implementing the DOL changes. Perhaps tiring of waiting for a common-sense practice to be implemented, Maryland (and soon – possibly – other states) are moving ahead now with potential legislation to protect the client’s best interest.

FSI (the Financial Services Institute), representing broker-dealers and financial advisers (not investment advisors like Mullooly Asset Management), opposes the fiduciary-duty provision of the bill.

Other states, including New Jersey, are also working on similar legislation to protect investors. The proposed NJ legislation would mandate that financial advisors disclose to customers they are not a fiduciary, and therefore not required to act in the client’s best interests.

Clients of New Jersey brokers and financial advisors would (if enacted) be required to be given a form stating, in plain language, “I (your advisor) am not a fiduciary. Therefore, I am not required to act in your best interests, and am allowed to recommend investments that may earn higher fees for me or my firm, even if those investments may not have the best combination of fees, risks, and expected returns for you.”

How do you think that will go over?

 

 

*TD Ameritrade survey of 1,000+ U.S. investors conducted by Penn, Schoen & Berland Associates

The Self-Fiduciary

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Clements

Why would anybody pay someone to evaluate their financial situation and not be truthful with that person? It seems like a waste of time, money and effort.

Yet, we’re all guilty of doing this exact thing!  We all go to various professionals for help several times a year and don’t do what they tell us to do. Financial planners develop strategies to help us reach our financial goals. Doctors provide care and prescriptions to treat our ailments. Dentists clean our teeth and tell us to brush/floss at least twice a day . Personal-trainers develop workout plans to help us achieve our fitness goals. Nutritionists develop diet plans to help us eat the right things. Not to mention, we can find the “right ways” to do just about anything on the internet. We have all the answers to our problems at our fingertips! So why do we still struggle with making these changes?

It’s easy to get distracted from what’s in OUR best interest because life seems to get increasingly more complicated with each day.

Emotions get the best of us and make us act out of line. Some of us can’t stand to see a disappointed face when we tell a loved one “no”. It’s difficult to reject social norms and break away from “the herd”. It’s hard work to determine what truly is in our best interest.

This brings me to a quote I read recently in “Ego is the Enemy” by Ryan Holiday.

IMG 1126 2I’ve been reading a lot from the Stoics recently via Ryan Holiday. The primary task in Stoicism is self-reflection. The caveat here is that we have to be 100% honest in these reflections. If we can’t be honest with ourselves, who can we be honest with?

Reflection creates awareness. It lets us identify areas of our lives that we would like to change. This is where the professionals mentioned above can help us. If we’d like to fix our finances, go see a financial planner. If we want to lose weight, go to a personal trainer and nutritionist. It’s that simple, right?! Not so fast.

While we can outsource “how to change”, we can’t outsource actually making the change. That still falls directly on us.

This is where we need to become a fiduciary to ourselves. A fiduciary is someone who is legally obligated to act in your best interest. The term fiduciary has been pushed to the forefront of the financial industry over the last few years. The investing public has started to realize that investment advisors should be held to this standard. While this is an important change in finance, it can and should be applied to our everyday relationship with ourselves.

It may seem selfish to be a self-fiduciary. A good analogy here is what they say before taking off on a flight; put your oxygen mask on first before trying to help others. Fix yourself before you try to fix the world.

Determine what is in your best interest through honest self-reflection. Figure out how to make the necessary changes. You’ll make the change if it truly is a priority to you. If you don’t, it never really was a priority in the first place. You stay focused throughout this process by acting in your own best interest, by being a self-fiduciary.

 

Why Do You Do What You Do?

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Recently, I watched a very famous TED Talk from a man by the name of Simon Sinek.  I’m sure many of you are aware of the talk I am referring to, and you can find it here, but for those who don’t know Sinek, or his work, let me recap it for you.

Probably the most memorable line, repeated many times for emphasis by Sinek, is “people don’t buy what you do, they buy why you do it.”  After hearing that line a number of times throughout Sinek’s talk, its meaning began to sink in. download 4

Sinek’s talk is directed towards companies, and why their marketing should surround WHY they do what they do, and not WHAT they do.  It’s more about getting people to buy into what you believe, and not what product you’re trying to sell them.  If the customer believes what you believe, there will be more loyalty and a better relationship between the company and the customer.

The example Sinek gives throughout the talk is Apple.  When Apple marketed a new product under Steve Jobs, they focused on why their products could help change the lives of their customers, instead of saying “this is brand new phone with lots of features.”  They successfully got people to believe what they believed, and eventually stormed their way to the top of the market share.

An example Sinek gives a company FAILING to explain their ‘why’ to the market was TiVo.  Sinek explained how TiVo was hands down a superior, revolutionary product, but was a commercial failure.  Instead of telling the market their ‘why’, they told the customers about WHAT the product could do.

After watching the TED Talk two or three times, I began to connect this to my own profession, and got to thinking how advisors could apply this to their own business.

Being a fiduciary investment advisor, being able to figure out why we do what we do is rather simple.  It is also rather simple to see why some people in our line of work don’t want to share their ‘why’ with clients.

Unfortunately, some people in this line of work would say their ‘why’ is ultimately to make as much money for themselves as possible.  Luckily, with new governmental changes happening, the industry is beginning to shift away from that line of thinking in order to make the clients’ best interest the forefront of our priorities.

Fiduciaries always need to make sure the client is number one on the priority list, making our ‘why’ ALWAYS about the client.  Some others in the industry might be motivated to make unnecessary transactions in order to generate commissions for themselves if the quarter is coming to end, but fiduciaries make transactions when it is truly trying to benefit the clients.

When it comes down to it, our ‘why’ really aligns with the clients’ ‘why’ as well.  It’s our goal to make sure the clients reach their goals.  Through common sense financial planning, and long-term asset management, the relationship between client and advisor needs to be fluid and cohesive.  Our motivation is not to generate as much commission dollars as possible, our motivation is to best make sure our clients are in the best shape possible with their finances.

It’s a shame that more people in the industry don’t have the same motives, but it is extremely important to understand why people do what they do.

I suggest, regardless of your profession, everyone should watch Sinek’s TED talk that I linked to above.  After watching the talk, if you’re a finance industry professional, and your ‘why’ isn’t in some way about helping your clients reach their financial goals, you might need to rethink what you do.  If your ‘why’ is more about your own personal gain, regardless of how that affects your clients, I suggest changing that ‘why’ before the marketplace changes it for you.

So why do we do what we do here at Mullooly Asset Management?  We do what we do so that our clients can sleep soundly at night knowing they’re in good hands.  We do what we do because we truly enjoy helping people, and we truly enjoy making a positive impact in people’s lives.  We do what we do not for our own personal gain, but because our clients put their trust in us to help them towards their financial goals, and we respect that trust and intend to uphold our end of the fiduciary standard.  We do what we do because we know that making long-term decisions for our clients will not only help them reach their goals, but it will also help US reach our goals as a company as well.

Simon Sinek has a very relevant quote: “Money is a short-term result that incentivizes short-term decision making”.  While there are a number of decisions that could be made to maximize short-term results, we believe in managing for the long-term because it will ultimately help our clients, and our own business, more in the end.

Hopefully if you’re an advisor reading this, your ‘why’ is similar to ours. Hopefully if you’re a client reading this, you can sleep soundly at night knowing that your interests are always number one on our priority list.

If you’re working with an advisor, ask them why they do what they do.  If the answer isn’t in line with why YOU’RE working with THEM, maybe it’s time to re-think that relationship.

 

Fiduciary Rule Has Led to an Awakening

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caseyThe fiduciary rule is partially in place as of June 9th. The most important thing this rule has done for the investing world is it has woken the public up to how important it is to work with a fiduciary adviser.

What does being a fiduciary even mean? Well it means that you have to act in the best interest of the client. But what does that even mean?

The difficult part is that it can mean very different things for everyone. This post will cover some key aspects that should be a part of every fiduciary relationship.

1. Honest communication between adviser and client about:

  • Goals
    The adviser needs to know what the money is for. It’s impossible for an adviser to act in the best interest of the client without this knowledge. The adviser may think they are acting in the best interest of the client but without the client communicating their goals the adviser will simply be guessing. This is a two-way street. It’s on the clients to tell their adviser what the goal is. It’s also on the adviser to ask and understand to the best of his/her ability what the client’s goals are. If the client doesn’t have any goals then the adviser should help the client set some reasonable short, intermediate and long term financial goals.
  • Compensation
    Understanding how your adviser gets paid is absolutely imperative. All fiduciary advisers should be up-front and open about their fees. If they’re not, that’s a serious red flag. An adviser that is unwilling or unable to explain his/her fee structure to their client’s is not an adviser that should be trusted.
  • Process
    A financial adviser should be able to explain their investment/financial planning process so all of their clients can easily understand it. If they can’t, their process is most likely too complicated. Keeping things simple and cheap works when it comes to investing.
  • Costs
    Every investment has some sort of cost associated with it.  Clients should know how much it’s costing them to own their investments. It’s on the advisers to let them know.

2.  Always doing the right thing for the client no matter what.

  • Sometimes fiduciary advisers are going to have to recommend a client do something that hurts their firm. This is the very essence of what being a fiduciary is all about. For example let’s say a client really needs to pay off a large debt he/she has. Their options are to either take out money from their investment account with their adviser  or open up a new credit card. Since taking on new debt just to pay off old debt is a not really getting rid of the problem, the adviser should recommend the client takes the money out of their investment account. This option would hurt the firm since the assets would no longer be under the adviser’s control. However, it would be beneficial to the client because they would be clearing some debt off their plate. A fiduciary should always put the client’s interests ahead of their own, plain and simple.

3. Limited conflicts of interest.

  • Advisers that charge an assets under management (AUM) fee or a retainer fee inherently have less conflicts than advisers paid on commission or by a wrap fee.  The real conflicts of interest are seen when “financial advisers” are incentivized to sell their firms investment products. These “advisers” get paid extra to put their clients into their firms products. Naturally these “advisers” will put their clients into the investments that pay them the most, not the investments that are in the client’s best interest.  It’s just like Warren Buffet said “never ask a barber if you need a haircut”. Never ask a “financial adviser” or stock broker (who gets paid to put you into products) for financial advice. Instead look for a fee-only adviser. There will never be a conflict free relationship, but minimizing conflicts of interest is a crucial aspect of being a fiduciary adviser.

Now that the Department of Labor’s fiduciary rule is partially in effect, I’m hopeful for the future of retirement savers. I’m slightly skeptical about how much the rule will actually be enforced. But like I said the most important thing this rule has done is it has woken investors up. It has woken them up to the fact that inexpensive, less-conflicted, honest financial advice is out there.  Now the investors just have to find it. When looking for an adviser make sure he/she covers the three aspects covered above as these should be a part of every adviser-client relationship. Especially if that adviser holds them-self out as a fiduciary.