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March 28, 2017

“Crash Proof” a Silver Bullet promise?

 “I have a real problem when I see the ads about the ‘silver bullet’ product that will solve all of your financial and investing problems.”

– Jeff Mastronardo CFP®, ChFC®, Senior Wealth Advisor at Financial Coach


Best Interest, a Black & White decision

 

When I was growing up I never had to worry if my parents were making decisions that were good for me. It was kind of understood, almost a given, that my mother and father put mine and my siblings interests ahead of their own. It could have been something as simple as taking the time to prepare a healthy home cooked meal, instead of taking the easy way out and bringing home the unhealthy fast food option. Or making the decision to send my brothers and I to Malvern Preparatory School, a decision that certainly was not in the interest of their bank accounts, but put our education ahead of their own financial plan. It’s nice when the lines are that black and white. Is our doctor recommending that prescription because their pharma rep just bought them lunch? Does my car really need an alignment or is my mechanic trying to squeeze as much as possible out of this oil change? Is that financial product going to help my plan or the broker’s bottom line?

 

DOL Fiduciary Rule

 

When we lack knowledge, we seek out advice from others and take a leap of faith that their advice is sound and in out interest. In the financial services industry, there is no requirement that your practitioners have to make recommendations that are in your interest before theirs, unless they opt to hold a professional designation that requires it (CFP®, CFA®, etc.). This is the basic premise of the Department of Labor’s Fiduciary rule which in its simplest form requires anyone who offers advice to investors in retirement plans to be held to the fiduciary standard of care. Currently investment products of the vast majority of the industry is held to the “suitability” standard of care. The DOL is trying to make it black and white, which we feel is a very good thing for the investor. Disclosure, truth and transparency are all attributes that each investor should expect to receive from those entrusted to manage their life savings.

 

The truth about the “silver bullet”

 

I have a real problem when I see the ads about the “silver bullet” product that will solve all of your financial and investing problems. Gold, variable annuities, life settlements… a lot of these products and the people who sell and market them to the public make claims that they are right for everyone and will solve all your needs. We know the truth is that diversification wins the race, and that building a plan that is flexible and changes with your needs is far more valuable than any product.

 

“We know the truth is that diversification wins the race, and that building a plan that is flexible and changes with your needs is far more valuable than any product.” 

 

I believe that an article posted by the Philadelphia Inquirer, “Fixed Index Annuities – ‘Magical’ or ‘Unsuitable’“¹ does a pretty good job summing up one of these silver bullets, Fixed Index Annuities, or “Crash Proof” — a term you may have heard in the past few years. However, there are a few statements within the article that I wish the author explained in more detail. 

  • The State Insurance Department doesn’t revel or discuss consumer complaints. In contrast, consumer complaints about stockbrokers are publicly searchable in the National BrokerCheck database.
  • …his product is safer than stocks and can earn bigger returns.” — Define safer and show the time-frame when they earned more than stocks.
  • The omission of dividends paid when comparing the S&P 500 to index annuities.
  • Licensed professionals in our insurance industry must operate under a fiduciary duty.” — THIS IS FALSE.

 

Do your homework

 

I hope you walk away from the article with a sense of how important it is to understand the agenda of the people that offer you “advice”. We, as investors, need help sifting through all the information out there. Be skeptical, do your homework, and make sure your advisors are held to standards of care that make them less susceptible to providing advice that serves their interest ahead of yours. Be aware of fear mongering and that some organizations may prey on our fears. If it sounds too good to be true, it probably is. This is all advice you know, but I think it helps to get a reminder every now and then. 

 

“Be skeptical, do your homework, and make sure your advisors are held to standards of care that make them less susceptible to providing advice that serves their interest ahead of yours.” 

 

As always, if you have any questions, comments or concerns please feel free to reach out to our team. Your feedback is always welcome.

Thank you for your trust.

Jeff Mastronardo CFP®, ChFC®

…and your Team that is held to the fiduciary standard of care.


¹ The Philadelphia Inquirer. Fixed Index Annuities — ‘Magical’ or ‘Unsuitable’. Staff Writers Mark Fazlollah and Erin Arvedlund, www.philly.com/philly/business/Fixed_Index_Annuities_Magical_or_Unsuitable.html. March 5, 2017