Don't Take Your Family to a Restaurant Where the Chef Doesn't Eat His Own Cooking The little known fact is few investment fund managers have their own money in the funds they are telling you will make you rich.

Fred Schwed Jr. was a professional trader who lost a lot of his money in the crash of 1929 that ultimately led him to quit. A few years later he wrote the investment classic, "Where are the customers' yachts?". The anecdote has been retold many different ways over the years, but in Schewd's version, a successful Wall Street broker named William Travers is admiring the many beautiful yachts while on vacation in Newport, Rhode Island. Each yacht he inquires about happens to belong to a broker, banker or trader. He asks, "Where are the customers' yachts?"

Nearly seventy years have passed since this story was first published, but it could have been written yesterday. Our financial system is still broken but that's not news to most people. A few years ago I decided I'd had enough. My personal tipping point came after I watched an Academy Award-winning documentary called Inside Job, about the Wall Street gunslingers who took crazy risks with our money and nearly toppled the economy. And their penalty? We the taxpayers bailed them out, often at 100 cents on the dollar, and then somehow that same cast of characters were put in charge of the recovery. By the end of the film, I was seething with frustration, but I converted my anger into a question: "What can I do?"

The answer is that I had to take the initiative to protect myself and others I care about. Not just my family but the millions of folks who I have the honor to reach.

When I interviewed some of the top experts I was stunned to learn just how the $10 Trillion mutual fund industry really works. For example…..

In a sobering 2009 study released by Morningstar, in tracking over 4,300 actively managed mutual funds, it was found that 49 percent of the managers owned no shares in the fund they manage. That's right. The chef doesn't eat his own cooking.

Of the remaining 51%, most own a token amount of their funds when compared with their compensation and total net worth. Remember, these guys earn millions, sometimes tens of millions, for their skills:

• 2,126 own no shares in the fund they manage.
• 159 managers had invested between $1 and $10,000 in their own fund.
• 393 managers invested between $10,001 and $50,000.
• 285 managers invested between $50,001 and $100,000.
• 679 managers invested between $100,001 and $500,000.
• 197 managers invested between $500,001 and $999,999.
• 413 managers invested more than $1 Million.

So why wouldn't these chef eat his own cooking? There are only two reasonable explanations: he knows the ingredients are bad; or he knows what the kitchen really looks and smells like. These fund managers are smart -- they work under the hood. So the obvious question is, if the people who manage the fund aren't investing in the fund they run, why in the world would I?

Whom to trust?

We have all seen numerous variations of the same commercial. The husband and wife, looking concerned, sit across the desk of their financial advisor. With the wisdom of a grandfather and the look of a man who has weathered many storms, the hired actor assures them that with his help, they will be just fine. "Don't worry, we got your back. We'll get your kids through college. We'll get you that sailboat. We'll get you that vacation home." The insinuation is loud and clear. "Your goals are our goals. We're here to help."

But are their interests really aligned with your interests?

Does the person whom you trust to plan your family's future have every incentive to operate in your best interest? Most would think "yes" and most would be wrong. This is no small thing. The answer to this question may be the difference in failing or succeeding on your journey to financial freedom. When climbing the mountain, how would you feel if your guide was more concerned about his own survival than yours? Or worse, how would you feel if he told you to take one path, and then he turned around and took another? As David Swensen reminded me, "Your broker is not your friend."

And here is the truth: the financial services industry has many caring people of the highest integrity who truly want to do what's in the best interest of their clients. Unfortunately, many are operating in a "closed circuit" environment in which the tools at their disposal are "pre-engineered" to be in the best interests of the "house." The system is designed to reward them for selling, not providing conflict-free advice. And the product or fund they sell you doesn't necessarily have to be the best available, or even in your best interest. By legal definition all they have to do is provide you with a product that is "SUITABLE."

What kind of standard is suitable? Do you want a suitable partner for life? "Honey, how was it for you tonight?" "Eh...the sex was suitable." Are you going to be promoted for doing suitable work? Do you fly the airline with a "suitable" safety record? Or better yet, "Let's go to lunch here; I hear the food is suitable."

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Yet, according to David Karp, a registered investment advisor, the "suitability" standard essentially says, "It doesn't matter who benefits more, the client or advisor. As long as an investment is suitable (meets the general direction of your goals and objectives) at the time it was placed for the client, the advisor is held free of liability."

To receive "conflict-free" advice, we must align ourselves with a fiduciary. A fiduciary is a legal standard adopted by a relatively small but growing segment of independent financial professionals who have abandoned their big box firms, relinquished their broker status and made the decision to become a "registered investment advisor." These professionals get paid for financial advice and by law, must remove any potential conflicts of interest (or at a minimum disclose them) and put the client needs above their own.

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By way of example, if a registered investment advisor (RIA for short) tells a client to buy IBM and later that day he buys IBM in his own personal account for a better price, he must give the client his stock at the lower traded price.

Imagine having investment advice where you knew that the law protected you from your advisor steering you in a specific direction or to a specific fund to make more money off of you. One important caveat however -- make sure the RIA is not "affiliated with a broker dealer." Unfortunately, the regulators allow for fiduciary advisors to also affiliate with a brokerage house. One foot in both camps! This is very confusing for the client when they think they are dealing with a fiduciary but the advisor can change hats when it best suits their own interests.

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One huge additional advantage? The fee you pay a fiduciary for advice may be tax deductible depending on your tax bracket. So a 1 percent advisory fee could really be closer to 0.5 percent when you take into account the deduction. Contrast this with the 2 percent or more you pay to a mutual fund manager, none of which is tax deductible.

Of course, aligning yourself with a fiduciary is not the only thing you need to be doing to protect yourself in today's financial environment, but it's a great place to start because you'll have access to someone inside the planning industry who is truly working for you. With that peace of mind you'll be able to turn your attention to different levels of financial protection like establishing proper asset allocation, reducing your taxes and fees, and designing a plan to weather stormy financial seas.