At a recent FPA meeting at which I was a guest speaker, I attended an educational session on ethics. It was a good meeting that discussed some real-life cases of advisor abuse. When the fiduciary requirement in the CFP Code of Ethics was covered, a discussion ensued about when a CFP practitioner is obligated to act as a fiduciary and when she is not.

I must admit that there were some very creative ideas offered about how one can go about changing the scope of the agreement in order to avoid the fiduciary standard. Frankly, I was baffled by this discussion. Regardless of the legal or ethical requirements one may have, does anyone actually believe it is good business NOT to put the clients' interests first?

This kind of thinking disturbs me on many levels. First, I look at it from the point of view of some of the consumers who are getting advice based on what is best for advisors and may or may not be beneficial for them. There are far too many people who are struggling to provide themselves with sound financial futures to be subject to advice that may sabotage their plans. This may seem harsh, but some of the examples I have encountered, which are discussed below, occur far too often. Next, behavior like this slows the progression of financial planning as a profession.

Unfortunately, the general public has no method for distinguishing between financial planning professionals who place their clients' interest first and practitioners who are more interested in providing products that pay them the highest commissions. When CFP practitioners act this way, it is even more disturbing. On another note, I simply cannot understand why someone who is attempting to develop long-term client relationships believes that providing unsuitable products and advice is good business.

Those of us who provide financial planning and embrace the fiduciary standard have encountered many situations in which it seems obvious that the advice provided is clearly not in the clients' best interest. For example, when Frank came to see us he had just retired and believed that his advisor had abused their relationship by selling him products that did not match his goals. When this representative left his broker-dealer for another, Frank decided to investigate him through Finra. He discovered that this advisor had been terminated for cause twice before and yet a new broker-dealer hired him.

As an aside, is there anyone who believes that the SEC would not discipline a registered investment advisor representative if that person was terminated by two RIA firms twice for cause? On paper, Frank certainly had enough to fund his retirement comfortably.

Unfortunately, in addition to his IRA, all of his other investments were tied up in limited partnerships, annuities with large surrender costs and private equity. Since these investments were not very liquid, he found himself in a situation where he needed to withdraw money from his IRA in order to pay his expenses, which were increased by the taxes he needed to pay on these withdrawals. Since he was only 65 and not subject to RMDs, these taxes created an unnecessary burden for him.

Moreover, the limited partnerships and private equity were providing little or no cash flow, and their future performance is in doubt. We are coping with the situation as best we can, but why would an advisor invest the majority of a client's assets in non-liquid investments when he knew that the money would be needed in a short period of time? While I have no way of knowing what his motivation was, it certainly seems probable that he was more interested in generating income for himself than he was income for his client. The fact that he had been terminated for cause by his broker-dealer certainly helped to confirm that.

A young couple who were still building their family was referred to us by their parents. While they had very little to invest, they needed life insurance and called an agent. They had one child who was 2 and another on the way. Their budget was limited and they told the agent that they could afford about $100 a month. Their parents suggested that they call me to get my opinion on his recommendation. The agent recommended that the husband buy $100,000 of whole life. Since his family was young and growing, it seemed obvious to me that he needed a much larger death benefit than that to meet his needs. The agent stressed the savings element in the permanent insurance policy, but what this client needed was to protect his family in the event of his death.

I suggested that he consider term insurance, and he was able to find a policy that provided a $1 million death benefit for 30 years for the same premium. Again, I have no idea why the agent recommended whole life insurance, but it is obvious that he did not take into consideration the needs of his potential client. The fact that he would earn a larger commission from the sale of whole life may have also entered in his decision-making. The end result for the agent was that he made nothing, and he could have easily earned a commission for selling term insurance, which was in the client's best interest.