There’s been much debate recently among regulators, industry associations, and advisors themselves about fiduciary responsibility. Jim Dew, principal and sole practitioner of Dew Wealth Management in Scottsdale, Arizona, sometimes wonders why. From his perspective, anyone in the financial services industry–an advisor, a planner, a broker, an agent, or a salesman–who deals with people and their money should operate as a fiduciary.
As an RIA, Dew has a fiduciary responsibility, but that’s not his sole motivation. “I feel a personal responsibility based on my own ethics and morals, that it’s the right thing to do,” he says. “If you take an insurance professional, or someone that works at a bank, or a mortgage lender, a lot of those folks don’t have a fiduciary responsibility by law, but in my opinion, they’d be better off in the long run, both for themselves and the client, if they did take their own stand and act as if they were a fiduciary and put the client’s interests first and fully disclose everything.”
Dew has about 200 clients and $45 million in assets that he oversees. His firm’s compensation is fee-based and comes from asset management fees, which account for the majority of revenues, planning fees, and commissions on certain annuities and insurance products. “It depends on how the client wants to put things together,” Dew explains. “If they want us to manage an account of stocks and bonds, then we would charge a fee for the assets under management. If they needed a long-term care policy, we’d get paid a commission.”
Dew firmly believes that in an advisor/client relationship, both parties have to put all their cards on the table. He stresses that all commissions and fees are disclosed to the client and he never charges a fee for a consultation that results in his receiving a commission. Dew charges a 1% fee for asset management, although he says that’s negotiable on really big accounts, and recently doubled his minimum client size to $500,000. “We do charge flat fees and hourly fees, but typically those charges are fees that people incur in the beginning,” he says. Often people who are uncertain about whether their current advisor is doing a good job will ask Dew to perform an analysis of their current situation, for which he charges a flat fee. “A lot of times people just want a second opinion,” he adds. Dew notes that he thinks most advisors do try to put the interests of their clients foremost, but without a clear delineation of a fiduciary standard, clients sometimes just aren’t sure.
To illustrate his point, Dew says that when he walks into a car dealer’s showroom and the salesman starts complimenting his taste and acting like they’re best buddies, he doesn’t take it personally. “I know that’s part of the game. I know he’s a sales guy,” says Dew. What Dew thinks many people fail to realize is that when they go to their broker’s office or to a mortgage lender that it’s often the same thing. “A lot of times they assume that those professionals have to put their interests before their own, and it’s not true.”
If fiduciary responsibility is the foundation of Jim Dew’s practice, mutual respect is the ground floor.
“What I mean by respecting the client is making sure that everything is disclosed, that they have all the pertinent information, that there’s no fee gouging or unnecessary commissions,” he says, “I’m telling them about the downside, not just the upside, because there are always numerous things that are not good about anything that I’m going to recommend, whether it’s CDs, stocks, mutual funds, managed accounts, or long-term care insurance. My job, out of respect for the client, is to detail all those things.”
The respect Dew expects back comes from having demonstrated to clients that everything is out in the open and their interests always come first, but the advice they get won’t always be what they want to hear. “If my client doesn’t respect me, then I can’t have the hard conversations,” he says. “If we have mutual respect, then when I come to them and say, ‘Look, here’s my recommendation, but let me tell you all the things that are wrong with it,’ or when I say, ‘I don’t think you can afford that house,’ or ‘You’re spending too much. You can’t spend that way and expect to keep money beyond your 80s.’ Those are the hard conversations I have to have. If we don’t have mutual respect, I may drive them away.”
Although Dew is willing to lose clients if that’s the price of his honesty, so far he says it hasn’t been a problem. In fact, he reports that since he’s adopted that attitude his referrals have never been better. He says his approach is along the lines of what would he want if he were in his clients’ shoes.
“I’ve had people come into my office with $5 million in investable assets and I didn’t take them because I felt they didn’t respect me,” he relates. “They saw me almost like a commodity. ‘This guy is the flavor of the month and if he doesn’t outperform this index or that index, we’ll just fire him.’ I didn’t need to do that, I didn’t want to do that, and ultimately I think people like that just sap your energy.”
Like many independent advisors, Dew began his financial career with a brokerage firm, working in the Arizona office of the MONY group. He had a great first year and so was made a manager, in addition to continuing to run his own practice. Subsequently he also became the firm’s compliance officer for five Western states. “I always say that the one year I did compliance, I got 20 years of experience,” he explains. In that position he dealt with numerous experienced planners whose businesses were an open book. “I could ask them all kinds of things about how they built their business, about their philosophies, why they were doing one thing and not another for a client,” he recalls.
As a compliance officer, Dew says he didn’t meet any advisors who were intentionally hurting clients, but he did find cases where the advisor’s own biases might lead to a lack of full disclosure. “They would spend 90% of their time on why this was the best mutual fund, or why the client should have stocks, or whatever else, but not talk about all the drawbacks,” Dew recalls. “Anyone that I’ve ever gone to for advice has never said to me, ‘Jim, do Plan A and there’s no drawback to it.’ They all said, ‘If you do that here are the drawbacks and the benefits,’ and then I went away and made my own decision. I said that looks like a better way of doing things.”
After continually butting heads with managers who saw making money for the B/D as the top priority, Dew decided to strike out on his own. In 1999 he opened Dew Wealth Management.
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