How Do You Quantify The Value Of Advice?

by: John Lohr

Summary

The DOL fiduciary rule misses the point.

Why do some financial advisors have high client retention?

Advisors: Look at your business and your clients, then re-evaluate your real role.

The new DOL conflict of interest/fiduciary rule got me thinking (always a dangerous thing). The IRA Rollover (from a 401k) business is not dead, but the regulators missed the boat here. Financial advisors have to justify advising a client on rolling over their 401k. Advantages, disadvantages, costs, availability of current funds, suitable funds need to be discussed to meet the "Best interest of the client" (read: "fiduciary") requirement. But what about the value of the advisor's advice?

Say you're a client and you have a financial advisor. Why do you have THAT financial advisor? Is it inertia, too much trouble to change, trust? I'm willing to bet that for a lot of clients the fact that their broker or advisor is or will be a "Fiduciary" won't mean much of anything. If we have good, well-trained financial advisors out there, it shouldn't mean anything at all.

I have a financial advisor who manages my money. He's my friend as well as financial confidant. I've known him for more than 30 years. I know his wife and his kids (adults now). I've stayed at their house. My kids (adults now) know him and his family. They swam in his pool and watched the fireworks at Disneyland from there. He's managed the investments that we have for most of the time that I've known him. My kids put their IRAs with him. He knew my late wife and took care of her estate issues when she died. My kids know that if something happens to me the first thing they do is call him and his son who works with him. That son is the contingent trustee on our trusts.

They're smart people. I don't measure his investment performance compared to anyone or anything else. I have no idea what he charges. I simply do not care. It's not a race. I trust him and his son with my very life.

Despite what is being made about it, "Fiduciary" is just a label. For my Financial Advisor and his son, the ethical treatment of somebody else's money is a way of life. So what I want to ask our infinite-wisdom regulators is this. "Hey, DOL, SEC, FINRA or whatever, how do you think I should evaluate the value of his advice? What's that? You have no idea?"

I didn't think so.

Original publication

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.