What characterizes the everyday relationship of the people you want to work with? Is it trust? Ethics? Willingness to serve? A genuine desire to help and put others first? These are the things that we believe are critical and at the core of being financial advisors. They are also essential when it comes to acting as a fiduciary, versus trying to sell our clients something.
Fiduciary vs. Sales-Person
n. pl. fi·du·ci·ar·ies - “One, such as an agent of a principal or a company director, that stands in a special relation of trust, confidence, or responsibility in certain obligations to others.”
Not all “financial advisors” are created equal! I know that may come as a shock, but it is true. If the person you are working with, is not an “Investment Advisor Representative”, who works with a “Registered Investment Adviser” firm, they MAY not be required to act as a fiduciary.
So what does it mean to act as a fiduciary?
In simple terms, it means that your customers’ interests come first. Not the financial advisors' interests. Not the firm's interests. Not the products with the highest commission or even the ones with the best returns. The client and advice to the client are at the center of the relationship.
More specifically, a financial advisor, financial planner, or broker who claims to act as a fiduciary is held to standards outlined in the 1940 Investment Advisers Act. Besides acting in your best interest they must:
- Owe you undivided loyalty and act in good faith
- Avoid engaging in any activity that’s a conflict of interest, or, at the very least, disclose any potential conflict
- Provide a full disclosure of any advice they offer
If you don’t know whether or not the broker/investment professional you are working with, is a fiduciary, ask them. If they say “no” or try to explain why it doesn’t really matter, you might want to consider making a change. A non-fiduciary does not have to:
- disclose to you why they are making the recommendation they are,
- whether or not they have been told to sell certain products,
- whether or not they are limited to the products their parent company provides or
- alert you if they have a conflict of interest in encouraging a particular investment strategy.
A fiduciary, must:
Take the time to be sure that your investment professional has a good understanding of your risk tolerance, time horizon, investment goals, financial picture and is acting in your best interest, before they encourage you to purchase a portfolio full of investments!
Would you go to a doctor if they gave you a prescription before they did an examination?
Be sure your advisor knows your situation, before making your investment decisions.