Above is the textbook definition of a fiduciary and it’s obvious why an investor should work with a professional who’s a fiduciary. Would you want someone who’s in a position of being a trustee or someone who simply arranges for the buying and selling of assets (a broker). To be clear, I am a fiduciary since I don’t earn commissions on investments that I recommend to clients. What this means is I have a fundamental obligation to act in the best interests of your clients and to provide investment advice in your clients’ best interests. I owe my clients a duty of undivided loyalty and utmost good faith and will not engage in any activity in conflict with the interest of any client.
Being a fiduciary has received a lot of attention in recent years and the Department of Labor recently created the fiduciary rule to protect Americans from being overcharged for high commission products in their IRA’s. The fact that they created this rule should indicate how much of a problem this was becoming. I believe this is a step in the right direction. Anyone who’s a fiduciary in the finance industry, being a C level executive or a board members understands the importance of what this means.
The SEC has written about how an investment advisor must be a fiduciary and what else I must do as a result which you can read here.
A firm called Hightower created a simple whiteboard video that explains the difference between a broker and a fiduciary in a simple and effective way. What’s humorous (or evil) is Hightower is dually registered which means it has a broker-dealer affiliate. If you’re a client and you have a brokerage account and an advisory account, your advisor can earn commissions and earn an advisory fee. Why that’s a problem to me is you don’t know whether you’re talking to a fiduciary or broker earning a commission in any given moment, even though you’re speaking to the same person.
Regardless, enjoy the video.
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