Monday, October 22, 2007

Client or Customer?

What kind of relationship do you have with your current financial adviser? Are you a client or a customer? A client is one for whom professional services are provided. A customer is one who purchases goods or services from another. [This might be a matter of semantics, as "customer" is one of the definitions of "client" - BUT "client" is not one of the definitions of "customer".] When I first started in the financial business, my mentor insisted we call the people we did business with "clients". But we were selling a product. The "clients" were purchasing a product from us - the definition of a "customer". When a purchase was made, if a competitor was more persuasive in convincing my customer to buy from him/her, I lost the account. The distinction between client and customer was lost on me - I was brainwashed to think of customers as clients. Somewhere along the way I had an epiphany. As a result, I no longer have customers, I only have clients. I don't sell products, I provide professional services for a fee. The securities business has drawn a clear distinction between the two. The regulations for securities broker-dealers always refer to "customers". What happens when someone engages a registered representative (aka "stock broker") at a broker-dealer and makes an investment? The representative earns a commission - that's because the person making the investment is a customer and is making a purchase. Now, there is nothing wrong with being a customer - and nothing wrong with the representative earning a disclosed commission - but most people don't know that the representative only has to treat the customer "fairly" and provide advice that is deemed "suitable" in light of the customer's circumstances. Contrast this with the Investment Adviser Act of 1940 ("the Act") that governs the conduct of registered investment advisers. The Securities & Exchange Commission (SEC) interprets the Act as meaning that a Registered Investment Adviser (and its affiliated Investment Advisory Representatives) is a fiduciary to its clients and owes those clients a duty of undivided loyalty and utmost good faith (italics added).

What a difference! What would you rather be - a client or a customer?

Thursday, October 18, 2007

Why Egalitarian?

e·gal·i·tar·i·an – adjective
asserting, resulting from, or characterized by belief in the equality of all people, esp. in political, economic, or social life. –noun
a person who adheres to egalitarian beliefs.

Everyone needs financial advice!

Tuesday, October 16, 2007


fi·du·ci·ar·y [fi-doo-shee-er-ee, -dyoo-]
Law. a person to whom property or power is entrusted for the benefit of another.

Law. of or pertaining to the relation between a fiduciary and his or her principal: a fiduciary capacity; a fiduciary duty.

What does "fiduciary" have to do with financial planning? A lot! The actions of the person holding the fiduciary capacity (e.g., a financial advisor) must ALWAYS put the client's interests first. ALWAYS.

A Registered Investment Advisor (or a Investment Advisory Representative of a Registered Investment Advisor) has a fiduciary relationship with his or her clients. A fiduciary relationship creates a legal obligation to put the client's interests ahead of the advisor's in all circumstances.

Ask a prospective financial advisor if they will have a fiduciary obligation to you.

The 7 Questions

Here are the 7 Questions you should ask a prospective financial adviser at the first meeting:

Who are you?

What do you do?

Why do you do what you do?

How do you do what you do?

Who have you done it for?

What makes you different?

Why should I do business with you?

We'll talk about the "right" answers in a future post.


Welcome to my blog on financial planning. The title is intended to convey my belief that everyone needs financial advice. That advice could take the form of a one hour meeting or a multi-faceted, multi-generational financial plan that takes months to complete. I will start by covering basic financial planning concepts and grow it from there. Thanks for reading!