Investor Bill of Rights

As an individual investor, the power is in your hands. You have the right to expect and require the best when it comes to your financial life. But it starts with understanding what you need to look for and what questions to ask to ensure all of your bases are covered.

To assist you in taking greater charge of your financial destiny, I’ve compiled an Investor Bill of Rights that you may refer to at any time to guide you through the minefield of financial complexity so you can achieve all that is important to you.

  1. YOU HAVE THE RIGHT to work with a financial advocate who puts your interests first. Let’s face it — the financial services industry as a whole, just like most other businesses, is focused on internal profits. Protecting and maximizing your wealth is secondary. Keep in mind that financial institutions do not know you personally, and if you think they personally care about you — think again. They don’t have a clue about your most important goals, fears and aspirations. This is why it is so important that, if you choose to work with a financial representative, you look for a financial advocate, not just any financial advisor. What’s more, that advocate should be completely independent of any financial institution. You should begin by ensuring the adviser is a fiduciary, which, by law, requires him or her to always act in the best interest of clients. Registered Investment Advisers and their representatives are fiduciaries.
  2. YOU HAVE THE RIGHT to complete transparency when it comes to your investments. Financial institutions are the masters of hidden fees, and history has consistently shown that high fees are one of the key contributors to the under-performance problem that plagues so many individual investors. Always remember that it’s absolutely your right and responsibility to know the ALL IN FEES associated with every investment you make.
  3. YOU HAVE THE RIGHT to know the full historical data behind any investment portfolio being proposed. This means seeing detailed portfolio returns after expenses for all the good years and bad years. Some advisers have this data going back to 1972. Though there are no guarantees of future performance, this comprehensive analysis of past portfolio results —especially during the down years — gives you a good foundation to work from and is helpful in determining a diverse portfolio strategy that meets your unique needs and risk tolerance.
  4. YOU HAVE THE RIGHT to a fundamental understanding of how the financial services industry works so that you know how to spot and steer clear of swindlers. Like any industry, the financial services sector has a few unscrupulous players who are out to steal your money. Fortunately, there are some key steps you can take to ensure that you’re protected.
    1. Never sign partially completed or blank documents.
    2. Never give an adviser full power of attorney.
    3. Never give an adviser or anyone else the password to your account.
    4. Never make your adviser’s address primary; it should only be yours.
    5. Never work with an adviser without having a signed contract.
    6. Never sign a contract that can’t be terminated at any time without penalty.
    7. Never make your investment checks payable to an adviser; make them only to the custodian. Since the custodian is the firm that has access to your investments, always work with a custodian that is well established and nationally recognized (e.g. Schwab, Fidelity, TD Ameritrade, etc.)
    8. Always make sure the custodian is totally independent of the adviser. Your adviser should never have custody of your assets. This is how Bernie Maddoff was able to pull off his Ponzi Scheme and steal hundreds of millions of dollars from his unsuspecting clients.
    9. Always open and review your account statements and, if possible, periodically check your accounts online.
  1. YOU HAVE THE RIGHT to an Investment Policy Statement (IPS) and should require your financial adviser to provide this. An IPS is a document drafted between a financial adviser and a client that outlines general rules for the adviser. This statement provides the general investment goals and objectives of a client and describes the strategies that the adviser will employ to meet these objectives, thus holding the adviser accountable to the client.
  1. YOU HAVE THE RIGHT to receive a holistic wealth management approach to your financial life. When you start out as an investor, your focus should be on growing your money. But once your financial portfolio has reached $500,000 or more, you should receive comprehensive wealth management services from your financial adviser that helps you grow, protect and maximize your wealth throughout your lifetime and even after you are gone. Here are four true wealth management components that should be offered at no additional cost by your financial adviser.
    1. Wealth Enhancement: With your permission, your financial adviser should proactively open the lines of communication with your tax adviser to mitigate income taxes whenever legally possible.
    2. Wealth Protection: We live in a litigious society. Your financial adviser should offer guidance to protect your wealth and help mitigate needless losses from unfair lawsuits. With your permission, your financial adviser should bring in legal council as appropriate to protect your wealth and if needed the financial adviser should negotiate legal fees on your behalf and submit them to you for consideration.
    3. Wealth Transfer: Make sure your financial adviser offers the comprehensive estate planning services necessary to preserve your wealth for your heirs. The financial adviser should be willing to take whatever time is necessary to work through the details with you. This can save thousands of dollars in legal fees. Finally, the financial adviser should negotiate with a lawyer and submit for your consideration the proposed legal fees to produce the appropriate legal documents.
    4. Charitable Giving: If philanthropy is important to you, ensure you work with a financial advisor who can help you maximize tax benefits and protect your donations from mismanagement or misuse.

 

Always remember that YOU are the BOSS when it comes to your financial life. The people who provide services in the financial sector should be there to serve you; not the other way around. So, don’t be afraid to demand everything contained in this Investor Bill of Rights.

Copyright 2018 by Walter F. Burns. All rights reserved.

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