So you want to know what a Fiduciary is? In the world of financial advisors, the word “fiduciary” is thrown around a lot. But what does it actually mean?
You’re in luck. In this article, we’ll break down the differences between a Fiduciary and other Financial Advisors, as well as what it means for you and your retirement plan.
A fiduciary is someone who has a legal and ethical responsibility to act in their client’s best interest. In other words, they’re not allowed to make any decisions that will benefit themselves at their client’s expense.
Types of Financial Advisors: Who Is A Fiduciary
Titles such as financial advisor, wealth manager, investment advisor, registered representative, and even financial consultant do not help the average investor (prospect) distinguish skill and proficiency much less whether they are allowed to act as a fiduciary.
There are three (3) types of financial advisors:
1. Brokers: Brokers have a license to sell whatever products their employer (broker/dealer firm) offers, so they may not always put your needs first—they may also have conflicts of interest that can result in poor advice. You have probably heard household names like Merrill Lynch, Ameriprise, Edward Jones, etc. Many of you may be surprised to learn that many of these largest institutions (and their brokers) are not allowed to work with you as a fiduciary.
Its important to understand that brokers work under a different set of regulations. By law, brokers only have to adhere to the suitability standard.
Brokers make up most (90%) of all financial advisors in the United States.
2. Fiduciary Advisors: Work for a Registered Investment Advisor (RIA) firm. A fiduciary advisor must provide advice that is in the client’s best interest and disclose any conflicts of interest which is known as the fiduciary standard. The fiduciary standard is the highest in the financial industry. Wealth & Business Planning Group, LLC. (The Financial Quarterback™), of course, is an RIA firm.
3. Dual-Registered Advisors: (It’s a shady business) Now here is a case that will confuse you even more. A dual-registered advisor is one that one who works as a broker (under a broker/dealer) and also registered as an RIA. It’s disingenuous.
An individual working as a dual-registered advisor can tell you that they are a fiduciary but then switch hats and sell you products offered by their employer.
A large portion of investment advisors work under this structure.
Is A CFP ® Professional a Fiduciary?
Not at all. A Certified Financial Planner may wear any of the above mentioned hats.
Keep in mind that the CFP ® Board is not a regulatory agency. It is an organization that sets and enforces standards for its CFP ® members. Even though the Board requires it’s members to act as fiduciaries at all times, a members employer may not be allowed by law to be a fiduciary. If a CFP ® professional does not uphold the CFP ® code of conduct, the only risk is that they will lose their designation and membership. There is no legal ramification and the advisor may still continue doing business.
Who Is A True Independent Fiduciary Advisor
A true independent fiduciary advisor has one thing in mind: YOU.
When you choose to work with a true independent fiduciary advisor, you are choosing to have the freedom to make your own financial decisions without having to worry about hidden fees and commission-based sales tactics. You will be able to trust that your advisor is recommending products that are best for you and your family, not just their own bottom line.
You can also check if your fiduciary advisor is dual registered or not. A broker will be registered with FINRA and RIA’s are registered under the SEC. A simple search to see who they are registered through is by checking out FINRA’s Brokercheck. This will let you see if they are a broker or not.
Richard Reyes, CFP ® and Wealth & Business Planning Group, LLC (The Financial Quarterback™) are not brokers and show on Brokercheck as “Previously Registered Broker.”
Are you are ready to work with a true fiduciary? Call me today so we can talk about your future.
