What is A Fiduciary?

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This is the Truth Network. Welcome to Finishing Well, brought to you by cardinalguide.com, with certified financial planner, Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in Finishing Well, including discussions on managing social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes.

Now let's get started with Finishing Well. Well, Finishing Well is a general discussion and education of the issues facing retirees. cardinalguide.com, Cardinal Advisors, and Hans Scheil CFP, sell insurance.

This show does not offer investment products or investment advice. Welcome to Finishing Well with certified financial planner, Hans Scheil. Today's show, What is a Fiduciary? Let me just say that if you were to ask in a Sunday school class, you know, what is a fiduciary?

As often, Jesus is the perfect answer. Because Jesus was the ultimate, and as I described this from John 15 to, you're going to go, Oh, yeah, he's the ultimate fiduciary, which, you know, a fiduciary would be someone who looks over their client's interest in the head of their own. But listen to what Jesus said along these lines, because in John 15, 13, he said, greater love hath no man than to lay down his life for his friends.

Right. And that was right after he said, This is your commandment that you're to love one another. Well, he, he illustrates that he doesn't just tell you what that is, but then he demonstrates what that is. And he certainly demonstrated with his life, right? I mean, when he was up on that cross, he was the ultimate fiduciary.

And what he's saying is, as we live our lives, we need to be thinking as fiduciary as our friends, you know, how can we lay down our lives in service, right for the Lord in friendship. So it's really cool this topic today. And so at the onset, you might go, I know what a fiduciary is, I don't need to spend the next 27 minutes. But oh, let me just say that we had the saying in the car business that was simply put, that presentation without demonstration is mere conversation. And the idea being that you could sell a Jeep Wrangler and tell people all about how fun it would be to take the top down and go driving out in the woods.

But if you do take the top down and you go drive them out in the woods, it's just a whole lot different experience. So as we go through what a fiduciary is today, we're hoping that we're going to be doing a demonstration of what does that mean practically? And man, oh, man, I think you're going to be just blessed to see how that can benefit you to understand these processes, right, Hans? Well, it is. And just when you look up the definition, and, you know, I have to laugh, I use the word dictionary on my YouTube video, but it, there really is no such thing anymore.

I googled it. I said, okay, I just want to read generically how is it going to define fiduciary, and it said a person who acts on behalf of another. Then you go down to another definition on Investopedia, and it's saying usually in financial matters, one person is looking after somebody, it's a position of trust. And fiduciary uses prudence, which I thought was kind of an interesting word. And I looked that up, and it says caution. So that makes sense of prudence, caution, and loyalty.

So why are we talking about this today? So in my business, I've been a fiduciary for a long time. Don't have to put dates on it, but I, in all the matters that involve financial planning, I act as a fiduciary. And that's because I'm a CFP, a certified financial planner, which is voluntary, and it's very difficult to achieve that. But the CFP organization, it's a self-regulatory organization, they watch out after me that any CFP, you better be treating your clients as a fiduciary in all financial planning that you do.

So I've been that. And then also in the investment management business, I'm also required to be a fiduciary on all financial transactions that involve investments. So, but the Department of Labor, who doesn't really regulate people like me and other folks, they just put in a new regulation that is approved by the SEC that started on February 1st of 2022 that requires any time, I mean the simplest way I could explain this, any time a person or a salesperson or a bank salesperson or a insurance agent or a financial planner or a stockbroker touches IRA money or 401k money or moves it from where it is into something new, they are now deemed fiduciaries. Okay, and it's not the institution, not the institution. So if it's Merle Lynch that we're talking about, Merle Lynch is not a fiduciary in its whole, it's the actual person that works at Merle Lynch, the stockbroker or whatever, or if we went to some other company, if it's an insurance company and it's nationwide insurance company and it's not the nationwide that sells the annuity that is the fiduciary, it's the actual person who made the recommendation that you take this IRA money or this 401k money and move it into an annuity with nationwide, that person is deemed to be a fiduciary and that's new. Yeah, right, that's very month and so there are a lot of people scurrying around to figure out what that means, which is all the more timely that we have this information, right Hans? Well it is and so I decided I was going to talk to my radio listeners and I'm going to talk to my YouTube subscribers and I'm going to just do the best I can to explain this issue and when you go to any of these organizations like the SEC or the North Carolina Department of Insurance or you go to the insurance companies who are under the North Carolina Department of Insurance or any other state or you go to the regulatory firms, I can't find a really good definition of a fiduciary. That's why I had to go and kind of look it up myself. Everybody talks about it like they know, oh yeah, yeah, a fiduciary, yeah and it's one who acts on behalf of another but I can't really find a definition and nor can I really find some guidance very well so I came up with it on my own and that's what we're going to, that's what we talked about in the video and that's what we're talking about today.

Good. This affects, you know, like anybody that's got a 401k and it affects if you're going to somebody that, or they come to you and they're talking about taking the money that's in the 401k and rolling it into an IRA, a different institution or if you've already got an IRA and you're talking to somebody like me and we're going to decide there's a better place for your IRA and it's to move it to XYZ company or under my management. So anytime you're messing with retirement money, from this point forward, the salesperson or the customer facing person is deemed a fiduciary and they're going to need to be able to prove to somebody, their regulatory organization or to you, the customer, that they acted in your best interest. They put your interests ahead of their own. Practically speaking, I'm looking at this from the beginning.

I said, well, I need to get ready to make this defense. I mean, what if somebody two years from now, somebody passes away or they, you know, they have a stroke and all of a sudden their kids are getting into matters and I'm meeting with them, which I seldom have this done to me, but let's just, let's assume for a minute somebody looks through their, why'd you do this? Why'd you do this? Why'd you recommend this?

Somebody starts questioning what I'm doing. I wanted to make sure that I've got really good documentation of, that I acted as a fiduciary, acted in their interests over mine. So, what I did is I just went through and the two parts of my business where this is going to come up is either where I'm managing money or managing investments and managing a portfolio or you're buying insurance from me and that insurance is on qualified money and it's most of the time annuities, I want to be able to demonstrate and prove to anybody that wants to ask that I'm a fiduciary.

So, I came up with a system which is really evaluating what's going on in my heart all along, but now I've just brought it to words and practice. Yeah, sort of a check sheet, right? That you got check boxes, you go this, we did this, we did this and so you've kind of got that structure for us.

I do. So, on the investment management side, the RIA that I work with, they made this kind of easy because with this law they just came out with a checklist and which we were doing all this stuff already and so it just, so what are, what are the benefits of the thing I'm putting them into which is managed money? How is that possibly better as a solution than where the money is sitting now? Okay, and so we can just go through that to start, I mean ongoing investment management and monitoring. I mean when people have money in a 401k or they have a self-managed IRA that nobody's really looking at, is when they come to me, my team and I were looking at this thing constantly and watching how it's performing like what's going on in the markets now and we're making recommendations.

They can call and ask us questions, we call them and so somebody's watching it. So, that's a benefit that a fiduciary does for people. The ability to act quickly, I mean I had a lady call me a couple days ago, that's a client and I've talked to her throughout January and into February and she just wanted to significantly reduce her exposure to the stock market and she wanted to do it like now and then she slept on it overnight and then yesterday we talked to her in the end of the day and we've moved $300,000 out of the market.

I'm not saying, I'm not giving advice to everybody out there, everybody you need to move out of stocks, this was just for her and a lot of this had to do with her emotional well-being. But in any case, we did that and we can do it very quickly, whereas if you had to go do that yourself or in your 401k, it's not going to happen as quick. Now, we're also able to reallocate an investment managed account. We're able to move you from one kind of stocks to another kind of stocks or from stock to bonds or just part of it and we could do all that without a commission. So, you can buy and sell things, you know, or we're going to do that for you at your request and you're not having to pay a commission on every sale because we have a fee-based account. So, that's an advantage, that is something that a fiduciary has and does.

Right, I'm going to jump in here because we got to go to a break in a second. We just want to remind you that so much of this information is found in Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement. It's also at his website, cardinalguide.com, cardinalguide.com and of course, the YouTube channel where you've got this whole video with a board that illustrates all these things we're talking about today. It's Cardinal Advisors on YouTube. So, when we come back, we've got just a whole bunch more on the application of, you know, how is a fiduciary actually going to benefit us through our financial processing to finish well?

We'll be right back. Hans and I would love to take our show on the road to your church, Sunday school, Christian or civic room. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans' expertise in qualified charitable contributions, veterans aid and attendance, IRAs, Social Security, Medicare and long-term care. Just go to cardinalguide.com and contact Hans to schedule a live recording of Finishing Well at your church, Sunday school, Christian or civic group. Contact Hans at cardinalguide.com. That's cardinalguide.com. Welcome back to Finishing Well with certified financial planner Hans Scheil and today's show, What is a Fiduciary? Again, we want to remind you, this is brought to you by cardinalguide.com.

So, Hans take us back. Yeah, so we were talking about the practical side, how this plays out in my practice and we talked about the two pieces of my business, the investment management side of my business, where generally we're taking part of people's money, sometimes all their money, other than what they keep back in the bank and we're managing it. And then the other side of our business, which is we're going to take part of their money many times and put it into annuities that are going to pay them a lifetime income. So, whenever I'm handling qualified money now, and I've been a fiduciary all along, but everybody that handles qualified or IRA money, money under ERISA, we need to be able to be prepared to defend that we're a fiduciary.

And so, I'm just, in preparation for that, I just created a checklist on the investment management side and we've gone over. It doesn't mean that every client gets all these things on the checklist, this is just the things we check off that are ways that this is in the best interest of the person to move the money under our management. And you know, one of those is they've got us to manage the money, we can act quickly, and then we also can reallocate among securities without having to pay a commission each time. We have more investment options, typically, not always, but then where the money is sitting now, so that a lot of times that's the reason people move money is they're limited where it was and they want to go into some other things. Well, let me just point out along that line, as I listen to you talk about it on the video, you mentioned three or four investments I never heard of in my life, and so one of the advantages is they know about this stuff that you might not have any idea of some of these different investments, right Hans?

Well, sure. I mean, there's a whole world of instruments, companies, products, securities, there's just a very large universe of those available to investors and typically in a 401k or an IRA, you're going to have limited investment options. This is one of the big reasons that people move to somebody like me because it just opens up a whole other world of things they may not even know about, but we know about them and so when that's the case, we're going to check this box in our documentation. And then the missing element a lot of times that people don't really see until they need it is the financial planning services that we offer around the investment management. So you get somebody that rolls over their 401k into an IRA and they may be doing that for a couple of these reasons, but we also offer financial planning services, kind of like I did for your father, Robbie, and I did for you, and that's just kind of in the background and it's something that just comes along with the package with us. We can count that, at least I do, as that's acting in somebody's best interest, so you come into us, you get all this other stuff that you don't even know about.

Right, because you're looking at what the outcomes are. One of the best things about my favorite goat in the world, is he likes to ask that question, what's this for? And so that's a big part of having a financial plan is like, not just watching it grow and oh goody, I have money, but actually looking at the purposes behind this and being a good steward has everything to do with having a vision and so it's wonderful to me, just absolutely wonderful, to have somebody that you know is working in your best interest that helps you with your vision for what you really want to accomplish with your stewardship. Yeah, I mean that could be as simple as calculating minimum distributions at age 72, required minimum distributions, and then showing how you can aggregate your IRAs and you can take it all out of one but you count the other ones and there's a bunch of stuff that us financial planners know, so it's just a benefit to the client to have a financial planner doing their investment management as well, you know if they choose to go that route. You know, retirement tax planning and so whenever we take money under our custody, I require this to people that we need to put together a tax plan. We need to say when are we going to pay the taxes on this money because it's not okay to me as a fiduciary to let people have money just accumulating so that their heirs pay taxes on it or just to do nothing about the tax side of it and we can actually do the planning.

We know what future taxation or at least we can guess what future taxation is going to be and put together a plan. So that's something that just comes along for the ride with our plan. And then we get to the area of fees. So when we charge you a fee, which we have to to make a living, as fiduciaries we disclose the fees to you. We share them with you and that's how we mitigate the conflict of interest because you know when you pay me money to do a service, it's hard for me to say you paying me money is in your best interest.

I mean it, I guess it's a stretch. So in the fees area, I just got three boxes you can check. You're either going to pay more for my services than you're paying now, you're going to pay less or I just have a box that's similar because I never want to put exact.

I mean it's just because it's impossible to match things up. But what the gist of it is, is if somebody pays more in fee than they're now paying, I just need to justify it and I need to disclose it. So that's on the investment management side. I just shared with everyone my checklist of how I am a fiduciary when people move money under my management. And then on the insurance side, it's a little bit different. It's that I've got a same checklist of how can I take 401k money, retirement money, money you haven't paid taxes on, how can I be a fiduciary and then recommend insurance. And there might be some people that would question that. So I'm doing it for you. And I can tell you exactly.

So put down my checklist. The first thing is when I'm recommending an annuity, most of the time they have a guaranteed lifetime income option on the annuity. So that's something that their 401k or their just investment account doesn't have. And the annuity has, it can tell you exactly. If you start your income at 70, you will get this amount per month and then this amount per month will come in for the rest of your life even if you live to 110 or something. I mean, it's just a guarantee that's unique to the insurance product.

Yeah. And this to me is another place like, oh my goodness, it's so wonderful to have somebody like Hans on your site because there are 40 bazillion from what I can see, different kinds of annuities. And once again, there's no way without just an amazing amount of research that you'd ever have experience for one thing, right?

Because you've had a chance to see what happens with these things from people that started out 20 years ago and here they are today. Well, and that's why you want to buy it from a fiduciary because the consumer, that's why they pass this regulation is just because the consumer doesn't really have, they don't know about all these things and then they don't know if the person coming in to see them is just pitching this thing and trying to make a big commission off of them. Now they can't do that anymore if they're using qualified money, they have to be a fiduciary. So I'm just going over the first point of the fiduciary because the annuity either has a guaranteed lifetime income or not, but I'm going to, that's the first thing I bring up. That's what, we're going to check that box and that is the way I carry out my fiduciary duties is getting you something so you're not running out of money when you're 85.

Okay. Then the next box is a guarantee of principle. I mean, that's the thing that an annuity offers is you can make money off the performance of the stock market.

It's going to be limited money. In other words, you can't make as much money in an annuity as you could just directly investing in the stock market. But the thing about it is, is you can never go backwards.

So in other words, if the stock market like what it's doing right now, annuities have been real popular over the last six, seven weeks. Okay. They offer a guarantee of principle.

Once the money's in there, it's never going to go backwards. And that's another fiduciary ingredient. Then we have to disclose now the commission to the agent.

Okay. That didn't used to be there. It's there now on insurance products. We have to disclose to the consumer and have them sign on how much we get paid for selling you this policy. Doesn't mean it makes us not a fiduciary.

It just means that it's a conflict of interest and we have to disclose it. Next one is selection from a choice of products. So what I do is I list two other products that I chose from at least three.

Most of the time we go to as many as five or six different annuity products, generally with different companies that are offering something similar. And so we've chosen this as the best of the bunch for this client. And you say that it reminds me, my father was the greatest car salesman I ever saw.

He really was. And with any customer he ever had, even though he'd spend hours and hours and hours with them, they always had to drive three cars because he would never let them just drive a car and buy it. You needed something to compare it to. And this is the same kind of thing. Somebody who's really looking out for your best interest kind of gives you an opportunity to look at the selection process, right?

Yeah. And me acting as a fiduciary, the nice thing for a lot of our clients, I don't show them these other two or three or four products. I only show the one I'm recommending. But when I'm in the business of proving that I'm a fiduciary, I can go back two years from now and say, I considered these five products or these three products. And I chose this one for this reason, for this person.

Okay. And that's how I'm a fiduciary to them. And pretty cool, actually. And so I'm glad I went through this exercise. And we just implemented in our thing. And it'll be in the notes going forward. We didn't document this before. We just know how to act as a fiduciary. And we've been acting as it for years, but now we're documenting. Well, wow.

Again, we've run out of time before we ran out of show. We're not done with our checklist, but you can see the rest of it if you go to Cardinal Advisors on YouTube, right? You've got the whole chart there and they're going to get a chance to see the things that we weren't able to cover yet today.

But I think we get the point that this thing is really, really helpful when you are entering into this process of trying to finish well. Again, we want to point you to cardinalguide.com. Cardinalguide.com is Hans's website where you can email him, get his book, call him, get all his contact information. It's all right there, as well as Cardinal Advisors on YouTube. Thanks again, Hans.

Yeah, thank you. Finishing well is a general discussion and education of the issues facing retirees. Cardinalguide.com, Cardinal Advisors and Hans Scheil CFP sell insurance.

This show does not offer investment products or investment advice. We hope you enjoyed Finishing Well, brought to you by cardinalguide.com. Visit cardinalguide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments and taxes, as well as Hans' best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement, and The Workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to cardinalguide.com. If you have a question, comment, or suggestion for future shows, click on The Finishing Well radio show on the website and send us a word. Once again, that's cardinalguide.com. Cardinalguide.com. This is the Truth Network.