Fiduciary Advice

When selecting a financial advisor, it’s critical to understand the different types of advisors. There are advisors who are employed by independent financial advisory firms, such as LS Wealth, and advisors who are employed by big-box brokerage firms. The advisors who are employed by independent financial advisory firms operate under the fiduciary standard, while advisors who are employed by big-box brokerage firms operate under the best interest standard. 

Most importantly, an advisor with a fiduciary obligation is required to put a client’s best interest over their own interests. That means the advisor represents the client in every investment transaction, not just as the provider of certain financial investment products. Fiduciary advisors are also prohibited from engaging in conflicts of interest or self-dealing. Fiduciary duty includes care and loyalty to the client as well as full and fair disclosure of material facts and any conflicts of interest.

In contrast, advisors who operate under the best interest standard must use reasonable diligence, care, and skill in making investment regulations. While they are required to act in their client’s best interest at the time of specific transactions, they aren’t held to this standard in all aspects of their relationship with their clients. Regulation Best Interest also requires advisors to provide appropriate disclosures to clients when they make recommendations and establish and enforce policies around conflict of interest.

Advisors — or brokers — who operate under the best interest, rather than fiduciary standards, are more like salespeople than true financial advisors. That means they get compensated for the products they sell, which can’t help but influence their recommendations. Because brokers are salespeople at heart, they aren’t as interested as fiduciary advisors in establishing long-term relationships with clients and building sustainable financial plans. In fact, many individuals who work with brokers don’t have written plans. Instead, they have a collection of products that don’t really add up to a sustainable strategy to either help them get to retirement or ensure that they have sustainable income during retirement.

Working with this type of advisor can really cost you. They tend to recommend investment products that are more expensive because they get a cut of those fees. Over time, higher expenses eat into returns, which means that investors keep less of what they’ve saved and of and the investment returns that those savings have earned. The cost of higher fees — and getting worse advice — can really add up, potentially robbing investors of a secure retirement.

Advisors with a fiduciary duty couldn’t be more different than brokers. Advisors operating under the fiduciary standard establish long-term relationships with the clients, incorporating their client’s unique needs and goals into written financial and retirement income plans. Because these advisors gain nothing by selling certain investment products, they have no vested interest in recommending expensive ones. Instead, because they are obligated to make sure that their client’s interests are protected, they are more likely to recommend products with low fees, since those investments contribute to better returns and stronger streams of income in retirement over the long term.

Before deciding to work with a specific financial advisor, make sure that the advisor has a fiduciary duty. Working with any other type of financial advisor isn’t a good move. A fiduciary advisor will look out for every client’s best interest over the long term.

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