What is Fiduciary Responsibility?
In simple terms, advisors with fiduciary responsibility have a legal responsibility to put your needs ahead of their own. There are a number of important differences that separate advisors who have fiduciary responsibilities from those who don't.
Industry estimates show that approximately 80% of financial advisors do not have fiduciary responsibility. This includes stockbrokers, insurance agents or simple sales representatives. They may hold various licenses, but since they are not fiduciaries, they are often more interested in selling insurance and investment products than managing your portfolio.
Non-fiduciary advisors are compensated through commissions, which are often equivalent to management fees over several years. In the end, stepping away from one of these products usually involves a hefty surrender fee -- no matter how bad the service or the results.
Titles for non-fiduciary advisors are unregulated, which means they can adopt any title they like: financial adviser, vice president, financial consultant, financial planner or whatever else sounds good. Of course, this doesn't change the fact that they are really insurance agents or brokers. It also doesn't change the fact that they typically do not have a fiduciary responsibility to put an investor’s interests ahead of their own, which means they are generally more interested in selling financial products with the largest commissions.
These sales reps have limited disclosure requirements. Most of them receive a large commission up front on the initial sale, which means they have very little incentive to continue helping the client.
Some estimates claim that only 20% of advisors have a fiduciary responsibility. The Paladin Registry puts the number even lower, estimating that just one in 12 advisors have fiduciary responsibility. They also state that fiduciary advisors primarily work with investors whose net worth exceeds $3,000,000.
Fiduciary advisors are usually Registered Investment Advisers (RIAs) or Investment Adviser Representatives. These advisors are registered with the SEC or the state security division, and they are acknowledged fiduciaries that provide ongoing financial advice and services. Fiduciary advisors receive compensation on a quarter-by-quarter basis for continued services, and that compensation ends if the investor is dissatisfied and chooses to leave the firm.
An adviser with fiduciary responsibilities is held to a higher ethical standard and should have the knowledge to provide sophisticated wealth management services and advice. RIAs are licensed to provide ongoing financial advice, and fiduciary advisors are required to provide disclosure in their ADVs.
The investor must always come first. At Howard Bailey, we always put your needs ahead of our own and live up to our fiduciary responsibilities.
View "Tony Robbins explains 'fiduciary' to Main Street," HERE!
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