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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Fiduciary, maybe a fiduciary and wear their fiduciary hat with you and do what's in your best interest, but you need to buy something that's going have a sales incentive. So they'll take off their fiduciary hat and they'll put on their broker hat. And now then they get it back in commission on that, whether they disclose it to you or not. That's a whole another separate topic. Welcome to How to Retire On Time, a show that answers your retirement questions.
Mike:We're here to move past the oversimplified advice that you've heard a 100 times. Instead, we get into the nitty gritty because the truth is there's no such thing as a perfect investment, product or strategy. In fact, there's no such thing as a riskless retirement. That's why it's so important to put together a retirement plan that's designed to last longer than you. Text your questions to (913) 363-1234, and we'll feature them on the show.
Mike:Let's jump in.
David:Hey Mike, do fiduciaries have conflicts of interest?
Mike:Yes, they do. So they're not immune to it. Everyone has a conflict of interest. The fact is, you will you admit it or not?
David:Okay.
Mike:Yeah. So fiduciary, the word, which is kind of a funny word. Yeah. It's written in Latin based in trust.
David:Okay.
Mike:And that's that's where fiduciary or fiduciary, whatever comes from. It's Latin. Okay. Trust legally speaking, fiduciaries are supposed to put your interest ahead of their own. Okay, that's that's how it's supposed to happen.
Mike:Yeah. The problem is there's all sorts of workarounds like dual hat disclosures and so on. So let me give you an example. Okay. A fiduciary, maybe a fiduciary and wear their fiduciary hat with you and do what's in your best interest.
Mike:But you need to buy something that's going have a sales incentive. So they'll take off their fiduciary hat and they'll put on their broker hat. And now then they get it back in commission on that, whether they disclose it to you or not. That's a whole nother separate topic. There's also the, the insurance issue.
Mike:So a fiduciary series 65 and all put your best interest ahead or ahead of their own. Yeah. They they may take off their fiduciary hat for a moment and then sell you an annuity, which will give them a back end commission as well. And here's my problem with it. Okay?
Mike:Fiduciaries are only relevant to securities and the insurer or the the security side. So when you think of stocks and bond funds and all all of the investments.
David:Okay.
Mike:That is a fiduciary.
David:Okay. Okay.
Mike:If you if you were to go to any advisor, any financial advisor, investment advisor and say, well, I want an annuity. Technically speaking, they have to take off their securities hat, their fiduciary hat, and then talk to you about annuities.
David:Okay.
Mike:That's a conflict of interest. They're going to get back in commission. Maybe it is in your best interest. Hopefully it is if that's what the route you want to go, but they're still going to get paid on it. And it creates all sorts of issues in the original fiduciary mindset.
Mike:And then you get other people say, well, we're fiduciaries. We're pure fiduciaries. Well, can you offer me an annuity? No, we don't do that. We're fiduciaries.
Mike:What if, what if that's in their best interest? But you're not licensed to do it. So depending on, well, I only work with fiduciaries. That's like saying, okay, well, work with fiduciary, which is important. You want to work with a fiduciary.
Mike:But how deep is the toolbox of your fiduciary?
David:So are all like securities licensed people, fiduciaries like automatically?
Mike:No, not at all.
David:So how do you become a fiduciary then?
Mike:A fiduciary license means they have a series 65 or a series 66 license.
David:Okay.
Mike:Now this gets a little bit more complicated because a series 65 license is under the the structure of a registered investment advisory practice. So an independent practice kind of like Kedrick Wealth. Okay. A lot of RIAs out there. And so they have a fee only service.
Mike:So they charge a percentage of assets. So like 1% is the cliche example, or there's very few like us that will charge a flat fixed fee. So regardless of how much money you have, it's the same price. Okay. Most of them are 1% and that's it.
Mike:They can't receive a backend commission. However, a series 66 license is paired with a series seven license, which means, Hey, I can be a fiduciary, but I'm going to take off my hat and now I'm going to be a broker. And that broker gets a back end commission. So I'm going get a broker, recommend some mutual funds to you. Great.
Mike:I just made commission off of those mutual fund sales. And it's like, well, why would you buy like, here's okay. I'm gonna go down a little bit of rabbit hole here. Why would you recommend me a high fee mutual fund when I could buy the same thing as an ETF? Well, that's how we get paid.
Mike:Okay, well, what's the fee structure to that? It's not you shouldn't be upset that they got paid back end. It's that they need to disclose what they're getting paid. That's my biggest issue. Because if if the financial professional and their whole institution is getting 1% on a back end mutual fund commission and this other guy who can't get the back end commissions charge you 1%, there's no difference.
Mike:But is the conversation happening? I find that it's not happening, not nearly as much. There was a recent conversation I had actually with someone that just came over and he says, well, I'm only paying a $100 a year. I said, no, you're not. You're not paying your financial guy a $100 a year.
Mike:And he's giving you all this attention. He said, well, how's he getting paid then? So we looked up his portfolio, looked at just one of the mutual funds and we saw the, the expense ratios and the 12 B one fees, all the fees associated with these. Well, he's a fiduciary. He also has a series seven license.
Mike:He's getting it back in commission. And we tallied up all the different fees associated with it. It was like 1.5, 1.6 he was paying in fees. Had no idea. He was never told he thought he was paying a $100 a month.
Mike:Oh yeah. Or no, a $100 a year.
David:A year even. That sounded like a great deal,
Mike:But unbeknownst to him, everyone gets paid. I have found that just saying you're a fiduciary, I don't think is enough. You've got to be able to articulate why something is in there, why recommendations happening and what's option A, B and C and what are their differences? You got to have a more comprehensive conversation. It's okay that people get paid to do a job.
David:Yes.
Mike:You know, I'm okay for a heart surgeon to get paid for the heart surgery. They worked hard to learn how to do heart surgeries. I'd like to live. I've never had a heart surgery, but you get the idea. I have no problem paying a financial professional a fee if they're able to help me get access to a product that I couldn't get on my own or that they they could help me get a better net of fee performance or at least I believe that they could.
Mike:You can't promise performance, but I believe that they would get a better performance through them than on my own. Like, that's fine. But it's the lack of disclosures, even those who claim that they're fiduciaries or that they have a fiduciary role. The legalities in these disclosures make it very confusing. So just so because someone claims that they're a fiduciary, I wouldn't bank on that.
Mike:Even CFPs. CFPs have very difficult designation to get in the financial services space. They have a fiduciary responsibility to do what's right for you, but they still have to have an understanding of what's available to you, which they may not. That's not a guarantee. And they have to also be a decent enough human to be willing to give up commissions for a better product.
Mike:I mean, I all admit there are many ways I could have probably convinced someone to put more in one insurance product or the other to get more commission for the company than something else. I don't do that. That's why we do buffered ETFs. That's why we talk people out of long term care often because they don't need it. Yeah, we can make a back end commission, but when you run the numbers, the truth is always told.
Mike:And so it's it's something that's important. You've got to be able to say, well, what is this? And then time equals trust. Spend time with them. Yes, they need to be a fiduciary, but see how deep of a fiduciary they are, how how much trust is being built?
Mike:How much transparency are you getting? How open are they about how they get paid? How other people get paid and differences? I mean, that it don't rely on titles. Look for character.
Mike:So important. I'm Mike Decker here with David Franson with Kendrick Wealth, and you're listening to how to retire on time. Recording. That's all the time we've got for today's show. If you enjoyed the show, consider telling a friend, leaving a rating, and most importantly, that you are subscribed to it so that you don't miss a thing.
Mike:For more resources, including a copy of my book, on demand courses, and so much more, just go to www.retireontime.com. If you want help putting your retirement plan together, go to retireontime.com and click the button that says get started. But seriously, from all of us here at Kedrick Wealth, we wanna thank you for spending your time, your most precious asset with us today. We'll see you in the next episode.