What is a Fiduciary and Why Should You Care?

What is a Fiduciary and Why Should You Care?
Kathleen T. Owens, Investment Adviser Representative, Fiduciary

Investment Advisers are regulated by the Securities and Exchange Commission (SEC) and to some extent, the Department of Labor. The SEC sets the rules by which investment advisers must follow. The Fiduciary Rule is a legal standard of conduct, which means an investment adviser must act in the best interest of their clients at all times and avoid, or disclose and conflict of interest.

“Best Interest” versus “Suitability”
Currently, the fiduciary standard is the highest standard by which investment advisers must act under. In contrast, financial advisors who work for a broker-dealer or insurance company do not have to always adhere to the fiduciary standard. They may act by giving “suitable” advice, but they do not have to always give advice that is in the “best interest” of their client.

Why Should you Care?
What is best for you, the client? The fiduciary rule is best for you. You will receive advice that is in your best interest. A financial advisor that is only held to giving “suitable advice”, may be giving conflicted advice. Meaning, the financial advisor may benefit financially be giving you only suitable advice. “Suitable advice” is a vague term that is difficult to interpret and enforce. The financial advisor may be tempted to recommend an investment that will give the advisor a larger commission, rather than recommend an investment that is in your “best interest”, which will give the advisor a smaller commission.

By working with an Investment Adviser Representative which is employed by a Registered Investment Adviser firm, you can be assured that the advice you receive will be in your best interest. Investment advisers only charge fees for their investment advice, rather than charge commissions, which may save you money.
The New York Times recently discussed the defeat of the fiduciary rule by a federal appeals court.
Phyllis Borzi, an assistant secretary of labor during the Obama administration who helped lead the effort to draft the original fiduciary rule., stated;
“When somebody is trying to give you advice, what you do is ask them if they are legally obligated to act in your best interest and as a fiduciary,” Ms. Borzi said. “If they say yes, or any euphemism that can be construed as a yes, then ask them to put it in writing.”

I have chosen to work as an investment adviser representative because I feel it is the most ethical way to work with my client. I always know I am doing what is best for my clients, and isn’t that what’s it all about?

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