If there’s one thing you need know about financial advisors, it’s this: All are not created equal.
In the world of investments, there are two paths you can take: You can go with a run-of-the-mill, non-fiduciary advisor — someone working for a large bank or brokerage firm. Or you can choose a registered investment advisor (RIA).
What’s the difference?
What is a fiduciary?
A fiduciary is someone who holds a legal or ethical relationship of trust with one or more clients and is bound to take action in the clients’ best interests. An RIA is considered a fiduciary and is legally and ethically bound to offer recommendations that are always in the best interest of the client.
A non-fiduciary advisor is not.
It’s a fact that takes quite a few clients by surprise: “You mean my financial advisor doesn’t have to act in my best interests?”
No. In fact, non-fiduciary advisors can recommend investments with higher fees, riskier features and lower returns to make more money for themselves, even if those options aren’t best for their clients.
Fiduciaries Can Save You Money
Given that, the White House’s Council on Economic Advisers has determined that non-fiduciary advice costs investors $17 billion a year.
That’s one reason why RIAs are steadily gaining market share in the wealth management sector. You need to know your money is in good hands and, when you ask for financial advice, that you’re getting what’s best for you, not your advisor. You also need to know how your advisor is compensated, and an RIA will give you all the details.
Registered Investment Advisors (RIA) are Fiduciaries
The rising popularity of RIAs is also being driven by a larger shift across industries toward a customer-first focus. Clients have come to expect more from the advisor-client relationship. Semi-annual meetings aren’t going to cut it in the 24/7, on-demand world we live in. Customers want an advisor who is accessible, trustworthy and driven to provide the best possible service and advice he or she can. So RIAs are building their practices around those customers — giving them a distinct advantage over large brokerages and banks with standard processes that don’t adjust easily to the needs of individual clients.
How do I tell is my advisor has a fiduciary responsibility?
So how do you know who is an RIA and who is a non-fiduciary advisor? Most RIAs — myself included — note our RIA status clearly on our website. But you should also do you due diligence and ask the right questions. Ask to see the advisor’s ADV (a form filed with the SEC) or ask if they will sign a Fiduciary Oath. You can never be too careful when finding someone to manage your hard-earned dollars or help you manage your debts.