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  • Mark Mooring

The Cost of Conflicted Advice

When people contact us because they’re looking for a new financial advisor we hear a variety of “must have” criteria. One thing we’ve heard more often in recent years is that they want their investment advisor to be a fiduciary.


The importance of having a fiduciary financial advisor is hard to explain, but mostly boils down to this: non-fiduciaries may have a conflict of interest that keep them from placing their client’s interests ahead of their own. That's why we formed Northstar Financial Management, Inc. as a fee-only fiduciary financial advisory firm - we say that it "puts us on the same side of the table as our clients."


I tried writing a longer blog post explaining the importance of choosing a fiduciary as your financial advisor, and then realized that the Obama Whitehouse had done it for me, in their 2015 report The Effects of Conflicted Investment Advice on Retirement Savings. I recommend reading that summary of the report, but also thought I'd share a few statistics it cites here, the help explain why having a fiduciary advisor helping you save for retirement is so important.

  • Conflicted advice leads to lower investment returns. Savers receiving conflicted advice earn returns roughly 1 percentage point lower each year (for example, conflicted advice reduces what would be a 6 percent return to a 5 percent return).

  • An estimated $1.7 trillion of IRA assets are invested in products that generally provide payments that generate conflicts of interest. Thus, we estimate the aggregate annual cost of conflicted advice is about $17 billion each year.

  • A retiree who receives conflicted advice when rolling over a 401(k) balance to an IRA at retirement will lose an estimated 12 percent of the value of his or her savings if drawn down over 30 years. If a retiree receiving conflicted advice takes withdrawals at the rate possible absent conflicted advice, his or her savings would run out more than 5 years earlier.

  • The average IRA rollover for individuals 55 to 64 in 2012 was more than $100,000; losing 12 percent from conflicted advice has the same effect on feasible future withdrawals as if $12,000 was lost in the transfer.





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