REFILE-Stern Advice - Financial advice you can trust - and afford

Wed Jul 10, 2013 4:59pm EDT

By Linda Stern

WASHINGTON, July 10 (Reuters) - The slowest-moving body in Washington right now is not the Nationals' outfield but regulators creating an ethical standard that would require financial advisers to put their clients' interests first.

Maybe that doesn't sound like it should be so difficult, but the idea of applying the so-called fiduciary standard to all advisers, including brokers who earn commissions on the securities they sell, has been under discussion since at least the 1990s. In 2010 the Dodd-Frank financial reform legislation asked the U.S. Securities and Exchange Commission to look into it.

Last week, the SEC closed its comment period on a request for information about how a fiduciary rule would affect the advice industry, and received a flurry of last-minute filings in response. Industry insiders said devising a rule would be costly and do a disservice to low- and middle-income clients. The National Association of Insurance and Financial Advisers, which represents insurance agents who also sell securities, told the SEC that a fiduciary standard would "harm the ability of middle-market investors to obtain financial services and advice."

That's because good personalized financial advice isn't cheap. Most independent advisers who are fiduciaries charge their clients a percentage of the assets they manage for them. Anyone with less than $250,000 in investable assets isn't that attractive to a fee-only adviser. Those clients can get free or inexpensive advice from brokers who sell products like mutual funds and insurance policies, but in return those clients end up investing in the products the brokers are being paid to push.

The SEC is trying to figure out the Catch-22 of giving consumers the protection of fiduciary advice while allowing "advisers" to earn commissions by selling products. Meanwhile, long-shot legislation winding its way through the House of Representatives would block the SEC from moving forward.

Even if that all gets solved and the SEC does write a rule, folks looking for good financial advice still will face challenges. One is affordability.

The other is the "fiduciary" title, which doesn't prove an adviser is trustworthy. Bernard Madoff was a fiduciary. Most recently, the chairman of the board that certifies financial planners - the CFP Board of Standards - was censured for failing to thoroughly disclose that he had an ownership stake in brokerage and insurance subsidiaries of a company he worked for.

So if you need help managing your money, you can't just wait for the SEC to act, or trust that the current certification system works perfectly. Here's how to protect yourself.

-- Prepare to pay. If you are getting your financial advice for free, you are not getting an adviser who is putting your needs above his own or those of his company. Smart and unconflicted financial advice is worth something, so get used to paying for it if you aren't willing or able to manage your investments for yourself.

-- Look for the term "fiduciary planner." Until Washington waters it down, it means the adviser has to make sure your investments are the best possible investments for you. It is a high standard.

-- Don't read too much into the term "fee-based." All it really means is "I charge fees." Ask your adviser to detail those fees, and how else she will make money on you. What makes up her total compensation?

-- Pay in proportion to your needs. If you are wealthy and have a complicated financial life, complete with multi-generational transfers, a family business and estate planning issues, you can easily pay tens of thousands of dollars for smart legal and financial advice. If you have half a million dollars that you want invested for you, expect to pay 1 percent or more of assets for that guidance and service. The lower your total assets, the higher percentage advisers typically charge, and advisory fees vary. If all you want is some help deciding where to put your 401(k), there are cheaper alternatives.

-- Consider limited advice for limited situations. The Garrett Planning Network ()specializes in fiduciary advisers that charge by the hour for solving simple questions, like "should I pay off the mortgage or invest in a Roth IRA?" For basic investment advice, don't discount the new breed of automated help from websites like Betterment, Wealthfront, Hedgeable and Covester. They recommend sensible and mainstream asset allocations and low-cost investments at a fraction of the cost of an actual person.

- Keep your money safe. Regardless of where you get your advice, make sure your assets are held in a bona fide brokerage account insured by the Securities Investor Protection Corporation. That will prevent the big rip-off - an adviser who poses as a fiduciary but steals everything you have.