This is the second article in a series by my friend, Dr. Jeff Devens. He’s a humble, extremely knowledgeable advocate for overseas investors, with an impressive knowledge about investment fees, US taxes and Roth 401 plans for educators overseas.

When it comes to financial advice, working with someone you can trust is essential. One term you may have come across when searching for financial advisors is Fiduciary. I remember my first meeting with a self-described Fiduciary. He showed up in our staff lounge offering Cinnabon’s and Starbucks. The cost of those pastries and coffee would pale compared to the profit he was seeking to “earn” from unwitting educators in the form of fees, fees, fees.

Fortunately, I was beginning my educational career and could barely afford to make payments on student loans, let alone purchase investment products, but I couldn’t pass up a “free” pastry.
What is a Fiduciary?
A fiduciary must act in the best interests of those they serve, even if it means less money for themselves. For example, The Code of Ethics and Standards of Conduct for Certified Financial Planners notes, A CFP® must serve clients in a fiduciary role; this includes:
• Acting with honesty, integrity, competence, and diligence.
• Acting in the client's best interests.
• Exercising due care.
• Avoiding or disclosing and managing conflicts of interest.
• Maintaining confidentiality and protecting the privacy of client information.
Unfortunately, not all financial advisors operate as fiduciaries, yet many promote themselves as such. Examples include:
Selling Products They Have a Personal Interest In 
Some financial advisors may promote investment products that they benefit from rather than recommending investments that are in their client's best interests. For example, an advisor may recommend a mutual fund that pays a commission for each sale, even if there are other funds with lower fees and better performance available.
In the Financial Services industry, there are two primary fee structure models offered to clients: Fee-only and Assets Under Management (AUM).
Financial advisors typically offer a flat fee for services. This may include costs per hour of service to quarterly or yearly fees, regardless of how much a person has invested with them or what additional services they provide (i.e., insurance, wills and trusts, estate, tax planning, etc.). Typically fee-only advisors will have an “easier” to navigate process for how fees will be assessed (i.e., charging $10-50 per month to retain services and a flat fee of $100 per hour for services provided, regardless of how much income a participant has under management).*
Assets Under Management
In contrast, an (AUM) model offers services based on the total amount of investments a person has. For example, an AUM model might assess a yearly 1.5% fee. If you had $1,000,000 managed by an advisor using this model, you would incur a yearly fee of $15,000. As your fund grows or shrinks, you would still be assessed the 1.5% fee. This fee (that is, the % you pay) may decrease the larger the amount you have under management, but the amount you pay yearly would increase. The fees could / may cover investment advice, product fees, and asset expenses, to name a few. There are typically additional fees built into AUM models for products offered, OR within the product itself. AUM advisory services are becoming increasingly popular in international schools, especially those offering retirement savings plans. It’s important to note that the school is not the one receiving the AUM fees; the plan sponsor is.
Promoting Products with Large Expense Ratios
Financial advisors can abuse their fiduciary duty by promoting investment products with high expense ratios because it benefits them financially. An expense ratio is an annual fee that a mutual fund, exchange-traded fund (ETF), or index fund charges to cover the cost of managing the investment. Even a slight difference in expense ratios can significantly impact your long-term earnings. For example, if you invest $150,000 in a fund with a 2% expense ratio and another $150,000 in a fund with a 0.5% expense ratio at an 8% annual rate of return over 20 years, the difference in earnings would be over $190,000! Seemingly small numbers add up over time.
Using Percentages and Expense Ratios to Confuse and Mislead Clients
Financial advisors can also use percentages and expense ratios to make investments appear more favorable than they are. They may promote an investment product with a low expense ratio but not disclose other fees that can significantly reduce the return on investment. Or they may use percentages to make a small return appear larger than it actually is. Hiding fees in percentage points, using percentages to make small returns seem more significant, or comparing rates of return with bonds and index funds are some tactics questionable financial advisors use to deceive their clients. Don’t take my word for it. Warren Buffett noted in his most recent shareholders letter regarding reporting operating earnings… “It requires no talent to manipulate numbers: Only a deep desire to deceive is required.” 
If you have someone promoting services, or you are seeking them, here are some questions to ask:
·      Are you a fiduciary, and what does this term mean in relation to the services you are promoting?
·      What are your credentials and experience?
·      How will you make money from me investing with you / your company?
·      Are you paid based on the products you sell, advice you give, or both?
·      How do you choose which investments to recommend?
·      Do you provide other services besides investment advice, such as cash flow/debt management, tax and estate planning, risk management and insurance planning, retirement consultation, and financial and educational services? If so, is there a cost for these services?
·      How will you evaluate the performance of my portfolio and make recommendations?
·      Can you provide references of others with similar financial profiles?
·      Have you ever been disciplined by a regulatory authority?
By asking questions you can make informed decisions about your financial future. This process isn’t about interrogation as much as it is confirmation of the services you are seeking. If a prospective financial advisor is offended by these questions, this may indicate they are not the right person to serve you. 
I remember speaking with my first financial advisor (AUM model) well over 25 years ago. I had gotten to a point where Matt told me, Jeff; you can do this “work” (investing, taxation mitigation, savings, etc.) yourself. While he could continue to support me for a fee, he believed I could manage my finances without incurring his fees. I still had/have much to learn, but I appreciated Matt's guidance and support to get me to that point on my financial journey. This was a fiduciary example I’d remember for the rest of my life.

*Self-disclosure and bias alert! Educators, we can learn to do this “stuff” by helping one another. If you require professional help, find a fee-for-service advisor whose goal is to empower YOU. You may need guidance (I did), assurances (I did), and a place to ask questions (I do). I am not implicating advisors who offer an AUM model. They, too, are offering a service and supporting folks. However, we can save hundreds of thousands of dollars by doing this ourselves, or with the help of a fee-for service advisor.