When advisor doesn’t act in your best interests
Don’t assume every fee-only financial professional is competent or is acting as a fiduciary.
Dear Liz: I hired a fee-only financial advisor a year ago. The advisor’s firm also included a CPA who prepared my 2017 tax return.
My tax liability was 100% more than what I paid via my W-2 withholding because the advisor traded constantly, incurring shortterm capital gains. He authorized 45 trades in a three-month period. My capital gains for 2017 were more than I have ever earned annually in my 40plus years of filing returns, yet the overall gain in my account was negligible.
I am 67 and soon to be retired. I do not believe he was acting in my best interests as his client. Is there any action I can take?
Answer: If you’re considering legal action, you’ll need to consult an attorney. If you want to take your beef to a regulatory agency, you can start by contacting the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
Just because an advisor is fee-only does not mean he or she is competent or a fiduciary (someone who is legally required to put your best interests first). Most advisors are held to a lower standard of “suitability,” which basically means their recommendations can’t be unsuitable, given the client’s situation.
Giving an advisor authority to make trades in your account is risky business. When you don’t know an advisor well, it’s better to start with a nondiscretionary account that requires your approval for any trades.
If the advisor earns your trust, you can consider switching to a discretionary account that allows trading — but first you should have an investment plan that makes clear, in writing, what your goals for the account are, what investments are appropriate and how often the advisor expects to make trades.
Most people are best served by passive investment strategies that seek to minimize fees and match various market benchmarks. Attempting to beat the market with frequent trading is usually futile, and costly. That’s especially true in taxable accounts because short-term capital gains are taxed at regular income tax rates, while investments held long term can qualify for lower capital gains rates.
Credit score search
Dear Liz: How do you go about checking your credit scores? I’m a recent widow and have no idea how to do these things. Answer: Checking your credit scores can help you monitor your credit and give you a general idea of how lenders view your creditworthiness. Many banks and credit cards offer free scores to their customers, so that’s the first place you should look.
Otherwise, Discover and Freecreditscore.com, a service of credit bureau Experian, offer free FICO credit scores to anyone. FICO is the leading credit score, although the score you see may not be the same one a lender uses.
There are different versions of the FICO for different industries (credit cards, auto lending, mortgages) and different generations of each formula. Some lenders use the latest version, FICO 9, while most use some version of FICO 8. Mortgage lenders tend to use even older versions.
Also, credit scores change because the information in your credit bureau reports, on which the scores are based, changes constantly. A higher or lower balance on a single credit card can cause your scores to swing significantly.
Another type of score is the VantageScore, a FICO rival that’s used by fewer lenders but commonly offered for free on personal finance sites including Credit Karma, Mint and NerdWallet. CapitalOne also offers free VantageScores to anyone, not just its customers.
It’s best to use the same type of score from the same credit bureau if you want to monitor your credit over time. It’s not very helpful to view a FICO 8 from Experian one month and try to compare it the next month with a FICO Bankcard Score 5 from Equifax or a VantageScore 3 from TransUnion.
The data used in the scores, their formulas and even the scoring ranges may be different. Most credit scores are on a 300-to-850 scale but some industryspecific scores are on a 250-to-900 scale.
Keep in mind that getting a free score means handing over information about yourself, including your Social Security number, and typically means the provider will try to market other products or services to you.