Why does it matter if your financial advisor treats you as a client or a customer? The answer is simple: the two words are legally very different and convey different rights.
A customer is defined as “a person who buys goods or services from another.”
A client is defined as “one under the care, protection, and guidance of an expert in a particular field.”
Imagine purchasing a life insurance policy, annuity, mutual fund, or similar financial product. If you are called a customer during the process, the seller is shifting the burden of the purchase to you, the consumer. You are the one who chose what to purchase. As such, you are the one ultimately responsible for the purchase.
On the other hand, if you are called a client, the advisor is taking you under their care, protection, and guidance – not only figuratively, but legally as well.
In the financial services industry, this is called a fiduciary responsibility. It can mean the difference in being up a creek without a paddle, or having legal standing and the ability to collect on any wrong doings.
A fiduciary is defined as “a person to whom property or power is entrusted for the benefit of another.” To make this clearer – it is an advisor that has the legal and morale obligation to do what is best for you, at all times, even to their own detriment.
So, why is that important? Don’t all advisors have to do this? The answer is unfortunately no – most have no legal obligation to do what is best for you. They only need to do what isn’t harmful to you. Sound the same? It isn’t, and here is why. An advisor, free from the bonds of a fiduciary obligation, can select similar products, neither harmful to you – and determine which to offer based on factors beneficial to him. These would include commissions, fees, allowances, and other incentives.
So even though one product or service may be a superior or better fit your needs, an advisor free of the fiduciary bonds can offer or exclude the one that doesn’t benefit the advisor the most.
While I would like to believe that the above scenario isn’t played out on a daily basis, the unfortunate truth is that it is being played out in living rooms, business conference rooms, and around kitchen tables regularly. So how can you avoid being misled, ill-advised, and ripped off?
Find a “Financial Professional”, someone who adheres to the principles and guidelines of honesty, integrity, and true professionalism. They will be a member of their local or national trade association. They will have advanced education or designations that show they continue to be educated and improve their skills. Finally, they will call those they work with their clients.
Don’t risk your financial future or well-being. Take the few extra steps necessary to identify a “Financial Professional” – you will be glad you did.
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