3 Ways to Tell if Your Advisor is a Fiduciary

By LRG Wealth Advisors on June 8, 2017

The Department of Labor’s Fiduciary Rule takes effect on June 9, 2017.  In this article, we argue that you should want a team of professionals such as LRG Wealth Advisors working with you in a fiduciary capacity.  

The Department of Labor introduced a new rule regarding requiring financial professionals working with retirement accounts to be held to the fiduciary standard of care. In other words, they will have an ethical and legal obligation to always act in a client’s best interest.The Department of Labor introduced a new rule regarding requiring financial professionals working with retirement accounts to be held to the fiduciary standard of care. In other words, they will have an ethical and legal obligation to always act in the clients best interest.^1,2 Many financial professionals already abide by a fiduciary standard. In fact, the fiduciary standard may soon become the “new normal” within the financial services industry.

Interestingly, many financial professionals have not engaged their clients while exercising the fiduciary standard of care. Historically, investment professionals have been asked to uphold a suitability standard when making recommendations to their clients. Under the suitability standard, financial products are recommended considering a client’s age, income, net worth, and savings goals. Many in the brokerage industry believe this standard works well.²

The Department of Labor disagrees. In its view, the suitability standard leaves an open door for conflicts of interest to affect client-advisor relationships. In theory, many investments or products could be found suitable for an investor, and the one most recommended could be the one that results in the largest commission for the financial professional offering the advice.^2,3

So, which financial services professionals uphold a fiduciary standard and emphasize fee-based or fee-only planning?

1. Registered Investment Advisors (RIAs) work by a fiduciary standard. They are regulated by the Securities and Exchange Commission and/or state securities authorities, and they charge their clients fees for many or all of the services they provide.  Firms can be RIAs and registered individuals that work for RIAs are called Investment Advisor Representatives (IAR).³
2. Certified Financial Planner™ practitioners also uphold a fiduciary standard. These individuals abide by the code of ethics and rules of conduct articulated by the Certified Financial Planner™ Board of Standards in Washington, D.C. They are directed to provide their financial planning services as fiduciaries.⁴    
3. The Accredited Investment Fiduciary® designation is a gold standard within the industry. An AIF receives this designation from the Center for Fiduciary Studies only after thorough classroom study and an examination. The AIF curriculum emphasizes 22 “prudent investment practices” developed to help AIFs meet real-world fiduciary responsibilities. Some AIFs go a step further in their professional study and earn the AIFA® (Accredited Investment Fiduciary Analyst) designation, an even higher standard of excellence, which qualifies them to act as fiduciaries and provide financial consulting for large businesses and non-profits.⁵

Sometimes, the decades-old compensation structure of the financial services industry can impact even those financial professionals serving as fiduciaries. For example, a CFP® practitioner may sell financial products that provide commissions.⁶

While many may argue the merits of the Suitability Standard of Care approach versus the Fiduciary Standard of Care approach, ask yourself which would you prefer.  Whether the Department of Labor’s Fiduciary Rule becomes the official regulation covering all retirement accounts or not, clients may well demand that financial professionals engage them under the Fiduciary Standard of Care.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – kiplinger.com/article/retirement/T023-C032-S014-fiduciary-rule-in-limbo-but-investors-are-still-wi.html [3/20/17]

2 – cbsnews.com/news/merrill-lynchs-landmark-move-to-end-broker-commissions/ [10/17/16]

3 – investopedia.com/terms/r/ria.asp [3/20/17]

4 – cfp.net/about-cfp-board/ethics-enforcement [3/20/17]

5 – investopedia.com/articles/professionaleducation/07/aif-aifa.asp [3/20/17]

6 – nerdwallet.com/blog/investing/searching-for-financial-advisors-online-what-you-should-know/ [3/1/16]