I spend lots Changing the Money Conversation 12 09 2014of time having client conversations. They range from the real nuts and bolts questions to sharing news that relates to their money life—a child got accepted to college, the husband lost his job, a parent passed away or a relative is in need of medical care.

But sometimes, clients call after a money discussion with friends, colleagues or their Uncle Joe. The headlines screaming about big money institutions forking over huge fines have sparked more than a few money conversations. Here’s a sample of one from last week.

“But my friend didn’t understand why I would trust someone who didn’t work for a company whose name she knows?”

“You mean like the large Wall Street brokerage firms?”

“Yes, exactly. Everyone knows their name.”

“That’s true. And they’re also the same firms that have paid BILLIONS of dollars in fines for doing bad stuff.”

“Haha, yes. So true. She asked me if you call me and recommend investments that you think I should buy. I told her that you never do that because we have an approach that doesn’t rely on stock picking or market timing.”

“That must have thrown her for a loop.”

“It sure did. My friend also asked me why I would pay an ongoing fee, rather than just pay a commission for a trade.”

“That’s a really good question. I would ask her whether she feels comfortable that her broker’s recommendation is in her best interest since he is making a recommendation that creates income for himself.”

“That’s what I told her. I said that I would rather work with someone who has no conflict of interest. She thinks that there’s no difference between what I’m doing and what she is doing, except for the commission vs. fee thing.”

“Did you explain that we have worked together to create a comprehensive financial life plan that looks at all aspects of your financial life, including risk, retirement, cash flow, college, taxes and estate planning? And that your portfolio is structured to track the amount of risk you are comfortable with taking over time and that it all fits together in your financial plan?”

“Well, I did tell her that we went through a lot of analysis and conversation about what we cared most about and that you made recommendations only after the plan was done.”

“So, what did she say?”

“She wonders whether the investments in my portfolio are names she’s heard about.”

“Did you tell her that using these Institutional investments is different than buying retail mutual funds in so many ways and that her broker cannot offer them?”

“It made her skeptical. She’s never heard of anything like that before and she’s been handling the money in her family for a long time.”

“I would tell her one thing. I would explain that Fee-only Advisors operate under the ‘Fiduciary Standard’. That means we legally must act in the best interests of our clients. It’s not only ethics, it is the law—and we must be ready to prove that upon examination. Brokers have a different standard, called ‘Suitability’. That means as long as the investment is suitable for an investor based on their income, net worth and investment experience, that’s all that’s necessary. It doesn’t have to be in the clients’ best interest.”

“How do they get away with that?”

“Good question.”

Changing the Money Conversation