Is the person managing your money a fiduciary? You have a right to know this information. Your long-term financial goals are at the center of each financial-planning decision we make. In fact, we encourage all financial professionals to exercise the same level of care and to follow the same stringent guidelines that we do.
A fiduciary financial professional who is advising you about investments must recommend investments that are best for you. Fiduciary professionals must also tell you about their qualifications and services as well as how they are paid. They must reveal any potential conflicts of interest and any disciplinary actions taken against them. Legally, investment advisors have a fiduciary responsibility to you, but brokers do not.
“But He’s My Broker…”
A broker does not have a fiduciary responsibility when giving you financial advice. The law does not require them to recommend suitable investments in line with your investment objectives, nor does it restrict them from considering the commission or company bonus they may receive from selling a particular investment. In other words: while an investment may be suitable for you it may not be your best choice.
“Who Is a Fiduciary?”
Registered Investment Advisors (RIAs) are required to operate under the “Fiduciary Standard,” meaning that an RIA is legally and ethically bound to put your interests ahead of their own.
Stockbrokers adhere to a much looser “Suitability Standard,” which means they only need to have “reasonable grounds” to believe that the financial products they recommend to you are suitable for your needs. In some instances, however, those investments could be lucrative for the broker at the expense of the client, i.e., more lucrative than a similar product from a competing firm. In addition to these looser and less transparent standards, broker/dealers usually do not have to make as many disclosures regarding conflicts of interest, fees, or previous infractions as investment advisers.
What You Can Do
Request a Copy of Form ADV: All RIAs are required to provide this two-part disclosure document by law. Part 1 contains information about possible past problems advisors may have had with clients or regulators including details about their business. Part 2 covers the advisor’s services, fees, and investment strategies. An RIA’s most recent Form ADV, Part 1 only, is freely accessed online at: www.adviserinfo.sec.gov. You can ask your RIA for a copy of ADV Part 2. They are required by law to supply it.
Learn Which Type of Account(s) You Have: Not all accounts are the same. A brokerage account is not an advisory account. Different accounts have different objectives. Be sure you have the account type that is right for you.
Your Best Choice: Work with an Registered Investment Advisor. Any other choice may be sub-standard.