Many people have heard of the term, “fiduciary” but how is this relevant to an investor when deciding a financial advisor? This is important because not all financial advisors are fiduciaries. So then, what’s the difference and why should it be an important consideration?
Let’s start by first understanding that there are two main types of financial advisors: Brokers, technically called Registered Representatives, and Registered Investment Advisors. They’re primarily differentiated by the standard of care they provide to their clients, specifically whether it’s a suitability standard or fiduciary standard.
Financial Advisors operating under the fiduciary standard, including our advisors at FFA Wealth, are registered as Investment Advisors and consequently are legally and ethically bound to provide the highest standard of care regulated by the Securities and Exchange Commission (SEC) and appropriate state securities regulators. These advisors are required to put their client’s financial interests above their own and those of the firm. Practically speaking, the advisor is required to offer their clients the best possible solutions at the lowest cost, no matter what fees or commissions the advisor earns.
Advisors registered as Brokers, however, are held to a lesser legal standard referred to as the suitability standard regulated by a non-governmental, self- regulatory organization called FINRA, or the Financial Industry Regulatory Authority. In this case, the advisor’s recommendations must be suitable for your needs, objectives, and financial profile, but they’re permitted to recommend investments and services that charge higher fees or earn them higher commissions than similar products might. Typically applied to more transactional based relationships, this may impact the products and services they recommend to you.
Therefore, we believe it’s best policy to always work with advisors who are fiduciaries like us so you know the products and services recommend are always going to be the best for YOU and not the advisor or firm.
Fiduciary duty is one of the most revered and powerful aspects of the financial industry. It requires that the advisor act in the best interest of his or her clients as well as demonstrate the highest level of loyalty and care managing your financial assets.
Below is a summary describing the main aspects of how we provide a fiduciary standard of care while working with you:
Provide personalized and suitable investment advice and recommendations
Provide full and fair disclosure of all material facts, defined as those which “a reasonable investor would consider to be important”
Avoid all conflicts of interest, such as when we would profit more if you use one investment instead of another, and disclose any potential conflicts of interest
As Registered Investment Advisors and therefore bound by the fiduciary standard of care, you can feel confident that our investment advice is made using the most accurate and complete information available and that our analysis is as thorough as possible. The personalized investment plan we make for you may also involve collaboration with those whom you designate are involved in your financial life, such as your CPA or Attorney, to further facilitate providing you the best level of care. You know that your needs, objectives, and preferences will always be our top priority, rather than personal or firm initiatives.
Ultimately, whether you think we are the best financial advisor for you depends on your unique personal circumstances, financial situation, and particular preferences. It matters, too, how closely you feel we align with your values, have the capability to help you attain what you are striving for, how well we listen to your needs, and if feel the fiduciary standard of care we practice is sufficient. All these things take great weight into your decision and so we encourage you to contact us so we may further demonstrate how effective we can be for you.