Always put the best interests of the client first

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The responsibility to provide good and sound advice regarding one’s financial affairs cannot be taken lightly. Unfortunately, as in all professions, we humans have a natural frailty which necessitates a need for regulation – rules of conduct, etc. The result of this often produces unintended consequences. Those with bad intentions break or bend the rules while those who try to follow the rules can get bogged down in compliance. There is an endless debate about how necessary regulation of business affairs is, however, I think it is generally accepted that our nation has managed to be less corrupt than most in the world. We can debate it another day.

Today I am going to share with you another story of an unusual experience during my long career as a Chartered Financial Planner! It’s about making investment recommendations that are in the best interest of the client. To set the scene, I must first establish some core beliefs. 1) Whenever making an investment recommendation, an advisor must answer a basic question: is it absolutely in the best interests of the client? If the answer is yes, then how could the advisor be compensated for his work. It’s not legalistic, but I’ve always followed this rule – and I’ve demanded it from others in the business 2) Variable annuities often get bad press in the press – and by advisers who don’t use them . However, they serve a distinct purpose that no other investment strategy can provide. That said, they are complex, often difficult to understand, and easily misrepresented that may not serve a client well. As a result, perhaps like some drugs, if misused harmful consequences are possible. Full disclosure, at my stage of life I like some guaranteed income and upward growth potential – so 23% of my net worth is in variable annuities.

For 20 years, I was affiliated with LPL Financial, the largest broker / dealer in the country with some 17,000 advisers. With such a large footprint in the “independent space,” the company’s advisors have offered a large number of variable annuities – perhaps more than any other financial entity. In 2006, due to fears of product abuse, the National Association of Securities Dealers (the regulator overseeing investment firms at the time) conducted a “sweep” for examples of abuse and information on how best to regulate annuities.

As an advisor with considerable practice and a belief in the proper use of variable annuities, I was “honored to be one of four advisers” within the LPL system to travel to Washington, DC to testify. in front of a NASD panel. My office spent a month collecting information on all of the clients that might have been affected. The NASD had three lawyers on a panel to interview you. An LPL lawyer came down from Boston to sit with me. Each counselor had to be grilled for 2 hours on specific cases selected by the jury. On the first day, two of the selected advisers could not answer the questions satisfactorily. I understood that they were going to have their license to practice in the industry revoked.

On the second day, the barrage of questions that was put to me began. I was quickly amazed at how little knowledge regulators had on the subject. Their method of questioning was a “catch” approach where they looked for inconsistencies in my testimony. With me (armed with my simple, but suddenly incredibly valuable credo – every referral has to be in the best interest of the client first) two hours turned into four, then five. At around the sixth hour, the LPL lawyer who was assisting me took me to a toilet and told me to wash my face. He then made me sit in a stall and said the following. “I have a flight to Boston. You are doing very well, but I can tell you are angry and frustrated with their deluge of questions. Remember, these guys are in control of your career right now. Take a deep breath and go back and keep giving them precise and true answers. The interrogation lasted nine hours! They couldn’t find a client violation in all of my testimony. I think I was finally “saved by the bell” because it was late on a Friday, and they wanted to go home! Me and my clients have done well. I went out to a sidewalk cafe, sat down, ordered some scotch and cried like a baby. All the bottled up emotion pours out.

So what are the takeaways here? 1) Investors and advisers should be grateful that there is a network of regulations to protect the best interests of each. 2) To advisors – never forget who pays the bills. Your clients deserve all your efforts to provide sound advice – take care of them and leave the high commissions, trips to exotic places, etc. to your “competitors”. Chances are they won’t be around for long. 3) If you have the “honor” of representing your industry in an interview, prepare well and keep your cool, frustrating as that may sound.

The opinions expressed in this document are for general information only and are not intended to provide specific advice or recommendations to an individual. To determine which investment (s) might be right for you, consult your financial advisor before investing. The economic forecasts set forth in the presentation may not develop as expected and there can be no assurance that the strategies promoted will be successful. The referenced performances are historical and do not guarantee future results. Not all indices are managed and cannot be invested directly. Investing involves risks, including loss of capital.

RFG Advisory and its investment representatives do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon, for tax, legal or accounting advice. Please consult your own tax, legal and accounting professional for advice on these matters.

Visit us at www.williamsfa.com. Tommy Williams is a Professional CERTIFIED FINANCIAL PLANNER ™ with Williams Financial Advisors, LLC. Titles offered by representatives registered via Private Client Services, member of FINRA / SIPC. Advisory products and services offered by investment advisory representatives through RFG Advisory, a registered investment adviser. RFG Advisory, Williams Financial Advisors, LLC and Private Client Services are unaffiliated entities. The branch is located at 6425 Youree Drive, Suite 180, Shreveport, LA 71105.


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