Jul. 25, 2018
To: The Honorable Jay Clayton
Chairman
United States Securities & Exchange Commission
Dear Chairman Clayton,
I believe the distinction between registered investment advisors and sales agents needs to be more strongly emphasized rather than further blurred.
I am an hourly fee-only, Certified Financial Planner® and an IAR of Garrett Investment Advisors, LLC., an SEC Registered RIA. My clients range in age from their early twenties to early eighties and mainly are, or have been, middle income wage earners. I offer them holistic financial advice, and only advice, for a simple, worst case flat fee. If the project takes less time than I estimated, they pay less. If the project takes more time, I absorb the cost. I won’t enter into an engagement with them if I don’t think it would be in their best interest to do so.
My services are affordable. If my clients were previously getting their advice from a brokerage or insurance company, my one-time fee can represent a considerable savings over the total “fee-based” fees and/or commissions they had been paying, often unknowingly. Although it would be nice to have the recurring income of AUM fees, as a fiduciary I do not manage investments because I can’t yet compete for a commodity like service that other firms can do for only 25-50 bps. But, by not offering investment management services, I am free to help clients construct efficient, easily managed globally diversified portfolios, including their employer plans, that are custodied wherever they like. Many choose Vanguard, TD Ameritrade, Fidelity and Schwab. Therefore, I believe I am less constrained in the types of investments I can recommend than a broker or agent at even the largest of firms.
The portfolios I recommend are often very different from the broker/agent managed portfolios my new clients ask me to review, which typically are more risky (to overcome the fees?) than the clients, and perhaps the broker/agent, understood and loaded with too many (harder to understand or unwind?) high fee proprietary products (managed mutual funds, variable and indexed annuities, non-traded REITS, etc.).
Despite any disclosures they may have read and signed, those clients were usually confused about what they were invested in. They were also confused as to when a dually registered “advisor” was or was not wearing a fiduciary hat. They were often angry to find out how illiquid their investments were or that a “guaranteed rate” wasn’t necessarily close to what they could expect to receive.
A few clients and prospects didn’t have the means to warrant AUM fees. They were sold inappropriate, single asset mutual funds with front end loads and high expense ratios including 12b-1 fees. If they had money left over to invest after establishing emergency savings and paying off their debts, they would have been better of in a low cost balanced fund recommended by Money Magazine. Bad advice can be very expensive. The public should know when they are getting professional advice and when they are receiving a sales pitch. There aren’t yet enough people offering the kind of service I offer. If the public knew what they were being sold by the big name firms that advertise their trust worthiness, but won’t act as fiduciaries, there would be more of us.
Please don’t water down or paper over what it means to be a fiduciary.
Regards,
Jim McMahon
Forerunner Financial Planning