Welcome to the 3rd and final post in the Distilled Dollar Investing Crash Course series. Each post builds off the last so be sure to check back on the first post and second post, if you haven’t already. This article is about the most dangerous term in the investment glossary, “Fiduciary,” and I’ll detail a clever loophole you may not have known about.
Why is Fiduciary dangerous? Because common advice in personal finance is do-it-yourself as opposed to paying somebody else to manage your money………..which is great, because if I work to earn the pile of cash, then I’m all on board with preventing people from taking a small % of it each year. The problem occurs when….
When people ask about obtaining a financial advisor, the advice becomes dangerous and borderline crazy.
This article will discuss and elaborate on why the most dangerous investment term is fiduciary.
What does Fiduciary mean?
Fiduciary – adj – means there is a legal obligation to place the client’s needs ahead of the fiduciary’s needs.
In theory, a fiduciary advisor will NOT push a product unless the product is in the best interest for the advisee.
Non-fiduciaries have what’s known as a “good enough,” clause that allows them to provide sometimes the bare-minimum in coverage or advice.
A common example here is a fiduciary may recommend her client to avoid high-cost mutual funds in favor of low-cost index funds. Given similar circumstances, a non-fiduciary, may push for the high-cost mutual funds because she is receiving a higher commission on the sale that is less fortunate for you.
In reality, a fiduciary advisor may be what’s called a “dual agent” — where they are hired to push expensive products while still calling themselves a fiduciary.
So, the next time you’re thinking of hiring an advisor, you know the two questions to ask:
- Are you a fiduciary?
- Are you a dual agent?
The money sucker would have stopped after the 1st question, but now we know a follow up is essential to protecting our money.
The Perfect Advisor for You
The perfect advisor for you is………you!
Ownership of our money leads to more than just financial benefits. Especially when we have little financially, it makes even less sense to pay someone to manage our little pile of money.
When it comes to money management, we should manage our money, where possible.
This is what we preach on Distilled Dollar because we live it. Everything we have ever done boils down to the fact that money management was done in house.
Even extremely low cost fees of 0.25% from places such as Wealthfront or Betterment will cost $100,000+ over your investing career.
More importantly than losing money, we could lose control by designating another to make decisions on our behalf.
The journey to financial independence involves setbacks, a whole lot of #Adulting conversations, and the opportunity to feel complete freedom. Not just financial freedom where our assets cover our expenses, but overall freedom from relying on others for our investment needs.
Take ownership of your investing life and I trust your benefits will be as great as mine.
P.S. This post is the final chapter of the Investing Crash Course! I trust you saw a sample of the largest benefits I received from investing as I discussed my journey to creating financial freedom in my own life along with the 3 Investing Transformations we all must go through to reach mastery over money.