Q&A: Mixing family and finances

Dear Liz: I have a relative who is a certified financial planner. He suggested we invest in annuities from which he will make commissions. When I asked him about his commission amount, he said he doesn’t feel the need to disclose that information because the fees don’t come out of my investment, therefore making them irrelevant. He says his fiduciary responsibility makes disclosing his commissions unnecessary. Is this correct?

Answer: Your relative needs to review the CFP ethical requirements. He wasn’t required to disclose dollar amounts or percentages of compensation until you specifically asked for that information. Once you did, he’s obligated to tell you. He (and you) can learn the details on the CFP Board of Standards site (www.cfp.net).

Commissions are far from irrelevant, especially when the product is as expensive and complicated as an annuity. Before you invest in any annuity, you should run the investment past a fee-only certified financial planner. Fee-only planners are compensated only by fees their clients pay and not by commissions that could influence their advice.

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  1. I generally make it a rule not to do business with relatives. If you make that clear, you are saved from having to fend off repeated sales pitches.

  2. Suzanne Rague says

    This insurance sales person referred to a fiduciary standard. However, insurance sales people and brokers who are compensated by commissions are are only held to a suitability standard. This allows them to recommend products which pay them and their employers high commissions and fees. Currently only Registered Investment Advisers, who are fee-only, are fiduciaries. Nevertheless, insurance salespeople always have an obligation to disclose the all commissions and expenses associated with an investment product.
    New Department of Labor regulations are in place to extend the fiduciary standard to all firms working with retirement plans. However, the lower suitability standard will survive for non-retirement assets, and investors should be informed and alert to protect themselves from deceptive sales practices.

    • Certified Financial Planners are held to a fiduciary standard by the CFP Board of Standards, which can and will yank the credential for ethics violations. Also, the DOL rule is in real jeopardy with the new administration. We can expect a lot of consumer protections to disappear in coming years.