Whether you're choosing a diamond ring for your fiancé or an asset manager for your retirement accounts, chances are you'd like them to be conflict-free.
Beginning January 1, 2018 all managers of retirement accounts will be obligated to abide by the Department of Labor (DOL) Fiduciary Rule.
In this blog, we hope to simplify the term Fiduciary as it is currently understood in the financial services industry and inform you of the benefits you may realize by working with a fiduciary.
Fiduciary Duty- "a fundamental obligation to act in the best interests of your clients and to provide investment advice in your clients’ best interests." - SEC
As John Oliver brought to the world's attention on his late night HBO show, it is crucially important to choose an advisor who is a fiduciary to ensure your assets are looked after with a leading standard of care. As John reveals in his show, "Not all financial advisors are bound to act in your best interest, but fiduciaries are."
Since we went independent and chose to become an RIA in 2013, we have been respecting the fiduciary standard. Any Registered Investment Advisor (RIA) is legally obligated to abide by this standard which was established by the Investment Advisors Act of 1940
However, not all advisors work at an RIA, so there are still a large number of financial advisors not bound by the fiduciary standard. When the DOL rule is enforced in 2018 the world will see a significant rise in the number of fiduciary advisors.
The Suitability Standard
You might be asking yourself, "If not a fiduciary, what is my advisor?" Chances are, they are held to the less reputable "suitability standard".
While the suitability standard does look out for clients, specifically by ensuring advisors understand a client's financial situation and investment experience, it does not obligate the advisor to act in the best interest of the client. This raises issues because an advisor held to the suitability standard does not need to disclose conflicts of interest to their client.
This allows advisors to peddle products that are not in the client's best interest. The most common abuse of the suitability standard occurs when an advisor recommends a commission based product that benefits themselves, rather than an alternative product that would save the client money but forfeit the advisor's commissions.
"The so-called “suitability” standard does offer some legal protections for investors, but it’s not the gold standard. No, for that you need to ensure that your investment adviser, or certified financial planner, is considered a fiduciary." David Serchuk - Forbes Magazine.
Big banks are continuing to limit the range of investment options available to their clients, making it difficult for advisors to provide conflict-free advice. This is driving the growth of independent firms.
By going independent, firms like ours are giving clients unconflicted advice and access to the full book of investments available on the market today.
We are proud to have been ahead of the curve on this one and we look forward to a future where all advisors will be held to the fiduciary standard.
Not sure if your advisor is a fiduciary? The easiest way to check is by browsing a document known as their ADV. Ours can be found here. All RIAs are required to have their ADV on their website.
Visit our website miradorcp.com to learn more about how an Independent Registered Investment Advisor can help you achieve your goals. Conflict-free.