The Investment Scientist

Posts Tagged ‘fiduciary

ImageSeven years ago when I started my advisory practice, I used to call myself ‘The Investment Scientist’ to differentiate from those run of the mill financial advisors.

My blog was called ‘The Investment Scientist’, and in marketing materials, I highlighted my academic training and scientific approaches toward investing.

Then, for whatever reason, I stopped doing that. Even the title of my blog has been changed to ‘The Investment Fiduciary.’ (The word ‘fiduciary’ signals my intention to put my clients’ interest first, but few understand its true meaning.)

Over the past year, I’ve rarely heard people call me an investment fiduciary, but sometimes would come across a long lost contact who’d say, “Aren’t you the Investment Scientist?”

There is a lesson here for me. Don’t use obscure words people don’t understand in marketing.

So why am I reverting back to ‘The Investment Scientist’ again?

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Financial Salesman

In an online forum, a doctor’s wife shared with me her story that should serve as a cautionary tale for all doctors.

Her husband had a solo medical practice. They had a “financial advisor” who advised them to put their saving into a $5mm cash value life insurance policy. They believed the product not only provided protection in the event of the doctor’s death but also was a great savings vehicle.

Last July, her husband was struck by an uninsured drunk driver. He suffered brain damage. Though he recovered from the coma, he was unable to practice medicine any more.

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I have a client (Let’s call him John) who retired 12 years ago from the government. He had a pension, and he had the option of taking out a lump sum of about $800k or drawing a monthly check of more than $4,400 per month until death.

Lost Retirement Money?

John took his options to his financial advisor from Smith Barney (now absorbed into Morgan Stanley Smith Barney.) Guess what the advisor recommended? He recommended that John take out the lump sum and let him manage it instead.

By the time John came to me for a second opinion financial review four years ago, his retirement account had only $265k left. John decided to become my client, and I have been able to restore some of his money, but not all.

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My friend is a savvy businessman. However, like most Americans, he has a misconception: he thinks financial advisors are legally bound to put clients’ interests first. This can not be further from the truth. Everybody and his grandma can be a “financial advisor.” Unlike being a “physician”, there are neither legal requirements no educational qualifications. Whether a certain financial advisor is bounded legally to act in his client’s best interests all depends on his true profession. Here is an ad hoc summary:

Professional Title Fiduciary?
Attorney Yes
Certified Public Accountant (CPA) Yes
Registered Investment Advisor (RIA) Yes
Financial Planner Maybe
Certified Financial Planner (CFP) Maybe
Wealth Manager Maybe
Insurance Agent No
Registered Representative No
Stock Broker No

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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