For Pete's Sake! Know the Truth About Coach Pete & Capital Financial Advisory Group

According to the Gallup polling organization, stockbrokers rank among the lowest professionals in terms of trust, and from what I’ve seen – for good reason. Too often financial advisors give the impression of working in the client’s best interest, and then actually doing what’s in their own best interest.  

Which brings me to America’s self-proclaimed wealth coach, Peter Jose D’Arruda, or as radio listeners in the Triangle may know him “Coach Pete.” Coach Pete, founder of Capital Financial Advisory Group, is a prolific advertiser on radio and television, and host of his own radio & TV show, Financial Safari.

I’ve peeled back the onion on Coach Pete & Capital Financial Advisory Group and what I found made me cry. In football, misdirection is used to confuse the defense. The quarterback fakes a handoff and throws the ball deep downfield. It appears Coach Pete is a fan of misdirection when it comes to working with consumers and how he gets paid.

Important to Know #1 – Fiduciary doesn’t mean fee only and he’s not always a fiduciary!

Coach Pete loves to promote the benefits of working with a fiduciary advisor. According to Coach Pete’s own words on his radio show, “fiduciaries cannot take commissions out of your money.” However, Coach Pete and his firm (Capital Financial) sell annuities and life insurance, and as the firm’s ADV (page 11) very clearly states:

                “If you decide to purchase an insurance product from Capital or one of our insurance producers as part of the implementation of your financial plan, we will receive a commission for selling it to you.”  

And it continues:

                “Because Capital is a registered investment advisor, we are obliged always to act in the best interest of you, our client. When you buy an insurance product from us however, our obligations as licensed insurance producers is to ensure that the product is suitable for your needs. These two standards are different.” 

Confusing? You bet! It seems Coach Pete faked a handoff and threw a touchdown pass, and that commission made Coach Pete big bucks!  

I call this fiduciary camouflage. Coach Pete lures people in promoting working as a fiduciary, but the reality is he receives commission compensation from selling insurance and annuities, products that explicitly aren’t held to a fiduciary requirement.

If you want to make sure you are working with a financial advisor who ONLY works in your interest, who is compensated exclusively under a fee-only arrangement, and possesses the Certified Financial Planner (CFP®) designation we suggest finding an advisor that is a member of NAPFA. This organization prohibits its member advisors from taking conflicted commission compensation.

Important to Know #2 – Coach Pete works in a minefield of conflicts of interest!

As we previously outlined Coach Pete likes misdirection. One minute he’s a fiduciary, the next minute he’s not. This is sometimes referred to within the investment industry as wearing two hats – sometimes conducting business as a registered investment advisor (fiduciary) and other times working as a commission insurance salesperson (most certainly NOT a fiduciary).

This misalignment of how an advisor works with clients creates conflicts of interest. You must read the fine print in Coach Pete’s ADV (pages 7 & 8) to get a fuller understanding of these conflicts.

For example, Capital Financial has solicitor agreements with three investment managers, which provide compensation to Capital Financial via a revenue-sharing agreement. Here’s how it works: Coach Pete may recommend XYZ investment firm to manage investments for a client. XYZ charges the client 2% of the assets under management, which on a $500,000 portfolio equals $10,000 / year. XYZ in turn pays a portion of this revenue to Coach Pete for referring the client to them.

The problem with such an arrangement is that it seems unlikely that Coach Pete would recommend any investment managers that do not engage in revenue-sharing arrangements with him. That excludes an entire universe of investment firms and some of the better low-cost firms like Vanguard or Dimensional Fund Advisors.

In addition to the conflict associated with revenue sharing with investment managers, Coach Pete is fundamentally conflicted by what financial solutions he recommends. For example, if Coach Pete gets paid 8% for recommending an insurance solution versus getting paid .5% from sharing revenue with an investment firm, which recommendation is more likely?

But don’t take my word for it, get it straight from Coach Pete’s ADV (page 11):

“…you should be aware that the receipt of commissions and additional compensation itself creates a conflict of interest. This conflict could affect our judgement (sic) and decision-making process when making recommendations about the implementation of your financial plan because Capital could receive more from selling an insurance product than we would from recommending an investment offered by a third-party manager.”

Coach Pete Loves Fixed Index Annuities (Hint: Because They Pay Huge Commissions)

We've met with several former or current  Capital Financial Advisory Group customers who have ALL been sold a fixed index annuity (FIA). FIAs are their own special type of financial nuclear weapon - and the wealth they are likely to destroy is yours! FIAs are complicated insurance products, where the fees are difficult to decipher and if you change your mind you face expensive surrender fees (often as high as 15%)!  We  go into detail on the perils of FIAs in this YouTube video.

Important to Know #3 – A Closer Look at Credentials and Qualifications!

Finally, we think it’s worth exploring Coach Pete’s credentials, qualifications and how he spends his time. Coach Pete’s advertisements certainly portray him as an investment guru. His bio touts the MRFC®, RICP® and Registered Financial Consultant designations. Those titles sound impressive, but what are the requirements to attain them? This article from Kiplinger helps sort the more rigorous and meaningful financial advisor designations from those that require little more than a fee to attain. Interestingly, FINRA, a regulatory agency of brokers and advisors, does not recognize any of Coach Pete’s professional designations (see page 6).

One thing that cannot be disputed is that Coach Pete is a marketing juggernaut. Radio and TV shows take time, so do taping commercials. With so much time spent on those endeavors, when does Coach Pete find time to work with clients? According to page 15 of the form ADV, Coach Pete spends 60% of his time on broadcasting and media efforts, and only about 25% of his time actually working with clients.

If I need surgery, I’m not selecting a surgeon who only spends 25% of his time practicing medicine. Does it make sense to take a similar gamble with one’s financial health?

There are 212 financial advisor designations, so finding a trustworthy and capable financial advisor isn’t easy. We agree with national radio host and consumer advocate Clark Howard who recommends consumers use a fee-only Certified Financial Planner (CFP®) who is a member of NAPFA.

We explore all of this in greater detail in the video below.