Fiduciary Standard

In the financial services industry, there are brokers and there are advisers.

There are people who sell products and there are people who sell knowledge. There are people who work for commissions and people who work for you. This is the fiduciary difference.

A FIDUCIARY is bound by law to place the interests of its Clients, before the fiduciary’s own interests. It is wrong to think that anyone offering financial advice to their clients is a fiduciary. Stockbrokers (also called “Registered Representatives”, “Account Executives”, “Financial Advisors” or “Wealth Managers”) and Certified Financial Planners (CFP) affiliated or employed by broker-dealers are NOT fiduciaries, even though they have engaged in high-visibility advertising to portray themselves as full-service financial advisors.

Most financial advisors are considered “Broker-Dealers” by the United States Securities and Exchange Commission (SEC). The critical difference between a stockbroker and a RIA is that the RIA is subject to the high fiduciary legal standard when providing advising services while the stockbroker is not. A stockbroker owes fiduciary duties ONLY to its broker-dealer – not to its investment clients. A RIA owes FIDUCIARY duties only to its investment Clients.

A RIA, subject to the Investment Advisors Act of 1940, is a fiduciary. The legal investment advising standards that govern a non-fiduciary stockbroker and a fiduciary RIA are very different. A non-fiduciary stockbroker only has to follow a “suitability” standard, which doesn’t require the stockbroker to place the interest of the client above his own. The stockbroker only has to provide “suitable advice”.A RIA, on the other hand, must follow the highest known standard in law which is the “trust” standard. The RIA is required by law to place the interests of its clients before its own and fulfill critical fiduciary duties of trust and confidence. The RIA must provide its “best advice”