Sales versus Advice
Most people stepping into a retirement financial advisor’s office are afraid of getting a sales pitch, and unfortunately, that’s the case the majority of the time. A broker or banker usually holds a Series 7 or similar license which allows them to sell securities like stocks and bonds and make large commissions on them—often with fees and kickbacks which they are not required to disclose.
But here’s the thing—what you may not realize is that many brokers and bankers hold dual licenses, and there are no rules or regulations against it. So they can legally claim to be something they’re not—part of the time.
For instance, a broker or banker can have both a Series 7 and a Series 65. Dual-licensing in this case means that when it comes to working with you, the broker or banker can be both a licensed broker (salesperson collecting commissions) and a licensed fiduciary (financial advisor supposedly looking out for your best interests).
Sounds like a big conflict of interest, doesn’t it? Well, yes it is.
Speaking From Both Sides
Dual-licensed guys are required to read something out loud like a “dual-hat disclosure” to potential clients. It basically says that, “When I am speaking to you about your retirement planning, I’m speaking to you as a fiduciary, but when I am recommending or offering any products for sale, I am speaking to you as a broker.” It’s kind of like being a doctor giving medical advice on the one hand, but switching into a pharmaceutical rep a minute later, prescribing the company’s latest, most expensive brand-name drug—the one that pays him the highest commission.
At Decker Retirement Planning, we know dual-licensed guys are not real fiduciaries because many of our retirement financial advisors left the big brokerage/banking industry a long time ago. We’ve been there, and we left for a reason. When you walk into a brokerage firm or a big bank, you just expect that you can trust them, right? If they say they are a fiduciary, then they really are, right? After all, they have that big brand name on the outside of their building.
Well, caveat emptor, let the buyer beware of the dual license.
Brokers Are Salespeople First and Foremost
You can’t be mad at a salesperson for selling you something. That’s literally their job. If you walk into an auto dealership, you can’t be upset if they sell you a car; that’s what they’re paid to do. It’s your problem if you let them talk you into buying the car if it’s not a good deal. It’s your financial responsibility to make the payments and make sure you didn’t pay way too much.
If you’re letting yourself take financial advice—especially retirement planning advice—from a salesman who’s also a “fiduciary” part of the time, you are shooting yourself in the foot, because brokers won’t recommend something that they don’t make commission on. That whole “I’m a fiduciary” thing here to give you the best advice (but only half the time) just isn’t true. Their sales career will be in jeopardy if they don’t sell what their firm is requiring them to sell.
Brokers will put you in a pie chart containing stock and bond funds, even if this really isn’t in your best interest. The pie chart is comprised of the only funds they can sell—the ones offered by their brokerage or bank. They have the legal protection to subject all your retirement savings to stock market risk in this manner, and they can’t be sued. Why? Because of the risk assessment test.
The Risk Assessment Quiz
Brokers have you fill out something called a “risk questionnaire” which is typically comprised of about 10 different questions. Based off of your answers to these questions, your pie chart is created, and boom, that’s the extent of your retirement plan.
If your pie chart does not perform well and you end up losing money, you can’t turn around and sue the brokerage firm because technically you’re the one that created the pie chart, not them. You created it based off of the answers to your questionnaire. Even though they’re the expert, they’re the professional, you technically put it together.
The Big Chunk of the Pie Chart Called “Bonds”
Now that you know that you are the one responsible for creating your pie chart, let’s talk about that pie chart for a minute. Your pie chart mostly contains two things: stocks and bonds. The biggest part of your pie chart is usually in stocks when you’re young (not individual stocks, but mutual funds containing stocks).
The pie chart is based on a “buy and hold” accumulation strategy that may work when you’re in your 20s, 30s, or 40s. But once you start getting closer to retirement, it definitely doesn’t. You simply don’t have the time horizon to make your money back from a market crash which typically happens every seven to eight years, or from interest rate fluctuations for that matter.
Here’s why. The retirement “Rule of 100” used by brokers says that you should start moving a bigger percentage of your money over into “bonds” based on your age because they are “safe”. So at age 55, you will hold 55% of your pie chart in “bonds” and at age 75, 75% in bonds—the percentage increases every year.
The trouble is, “bonds” are considered to be synonymous with “bond funds.” But they’re not. Bond funds should not be considered to be safe money.
The Difference between Bonds and Bond Funds
So what’s the difference between a bond and a bond fund? A simple, individual bond can usually be considered safe—it is fixed, for the most part, and it will pay a certain percentage amount of return on top of your return of principal at maturity; say after 10 years, or whatever the duration is. (Municipal bonds might not be safe, but that’s another story.)
But bond funds are unique. A bond fund is basically a type of mutual fund that’s full of thousands of different types of bonds with different maturities from all over the place. One of the advantages to a bond fund is that it’s liquid. You can get in and out of it at any time. But one of the huge disadvantages is that the net asset value of that bond fund is dependent upon all the face values of the thousands of different bonds that are within the fund.
As interest rates rise, the value of all of the older bonds in the bond fund will go down, because nobody wants to buy a bond that’s paying 2% today if next year’s bonds are paying 4%. Demand will fall, and the face value will fall, and then the net asset value of the bond fund is going to fall with the face value of all these individual bonds.
You can look back historically and see that this is true. For instance, in 1994, interest rates went from 6% to 8% on the ten-year Treasury bond, and the average bond fund fell by about 20% that year per Morningstar. With interest rates being at, or near, historic lows (and the Fed saying they are going to raise them), it just doesn’t make sense to have the majority of your assets in bond funds as you approach retirement. Yet that’s exactly what’s still happening the majority of the time.
Brokers and bankers are still saying that you can withdraw approximately 4% per year from your pie chart of fluctuating stock and bond funds—all subject to market risk—and be “just fine” in retirement.
At Decker Retirement Planning, we feel this is tantamount to financial malpractice. This advice is what destroyed many retirements in 2008.
Hire a Real Fiduciary Retirement Financial Advisor
Art Levitt, past SEC (Security and Exchange Commission) chairman said that if you have more than $50,000 of investable assets, you should work with an investment advisor who is a fiduciary.
There are a few—albeit very few—real fiduciaries out there. In fact, there are approximately 1.6% of all financial services professionals who are singly-licensed true fiduciaries, according to Tony Robbins’ research. From his website, “Of the 10% of financial advisors who are fiduciaries, many are dually registered — meaning they can act as both a broker and a fiduciary. Legally, they don’t even need to notify you of their dual status, or whether they’re acting as a fiduciary or a broker at any given time!”
We deliberately set up Decker Retirement Planning to be a real fiduciary, and Brian Decker has been providing fiduciary retirement advice for more than three decades.
Real Fiduciary Requirements (All Three Are Required)
- The true fiduciary holds only one license – the Series 65. There are no conflicts of interest, they are legally required to provide advice in your best interest, even if they don’t make any money on it.
- The firm has to be set up as a Registered Investment Advisory (or RIA), completely independent of any big brand or company that develops and sells investment products. There’s no one telling us what to sell or recommend; we have access to hundreds of products from various financial entities.
- The firm is fee-based and transparent. You’ll know about the fees you’re paying, everything is fully disclosed in terms of what Decker Retirement Planning is getting paid, as well as what fees are involved within your actual investments (see the information about C-shares at the end of this article.) There are no hidden fees or commissions influencing our investment recommendations.
Decker Retirement Planning’s Approach
Brian has spent more than 30 years developing our retirement planning methodology, and it’s all based on math—math that adds up for you, the retiree. We want you to see on a spreadsheet exactly how your plan will lay out up to age 100. We have proprietary algorithms that can show you down to the dollar how much you can spend. We include all your sources of income, including Social Security, and we include taxes, RMDs (Required Minimum Distributions), cash for emergencies, and cost of living increases. The plans we develop are complex and take many hours. They are the opposite of winging it with a pie chart.
We also help you address the many risks you face in retirement, like death of a spouse, the potential need for long-term care, estate planning, and liability coverage in our lawsuit-happy society. We will encourage you to do fun things at the beginning of your retirement, and create experiences with your family that are irreplaceable.
A lot of our recommendations don’t profit us in any way, they’re just what we’ve learned through the years will be best for you financially in our experience? Why do we do things this way? Because we are a true fiduciary retirement financial advisor.
Word to the Wise about C-Shares: Perform a Quick Check of Your Holdings
If you’ve got a portfolio and you’re invested in mutual funds, make sure you don’t own any C-share funds. Brokers still sell C-share funds, but they’re toxic (many third party platforms like TD Ameritrade won’t even allow them) and they’re rife with hidden fees which can cost you thousands of dollars in potential returns. Bloomberg’s one of our favorite sites to just check up on the funds and see the fees that are actually happening. We highly encourage you to do that. Click here: https://www.bloomberg.com/markets/symbolsearch/
Or just call us at 855-425-4566 for a complimentary look at your retirement situation. We are a retirement planning firm – an actual independent, fiduciary RIA holding a Series 65 license.
Decker Retirement Planning has offices in Kirkland, Washington, Seattle, Washington, and a new office in Renton, Washington for all those that are down south of the lake. We’ve also got offices in downtown Salt Lake City, Utah, and a beautiful office right downtown in San Francisco, California.
We look forward to meeting you.
