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Studies show that investors who partner with a professional to plan have less stress, anxiety and overall, they can show to have higher success rates in achieving goals they have set. There are many reasons why this is and we outlined some of them in previous posts such as Why You Should Partner With a Financial Planner (Even if You’re a Pro) as well as Why Your Goals Are the Only Index to Measure Against. But one of the things that can be nagging investors in their relationship is that they feel like they are being sold when they work with their professional, and there can be many reasons for this such as the style of the professional’s delivery. However, one of the bigger topics over the last few years can also answer why things may feel this way: is the professional a fiduciary or not?

What is a Fiduciary vs a Broker?

A Fiduciary most simply put is a professional who is governed under the standards to put your interests first before their own. This is very black and white in the sense that your interests when it comes to recommendations, holdings, fees and costs needs to be put as the number one part of an equation when they review and advise you on your financial situation. In the case of a broker or broker-dealer there is not a fiduciary standard that is set forth as a part of the regulation of this registration and therefore there is a suitability standard that is in place rather than the fiduciary standard. What suitability means is if the advice and holdings being recommended are “suitable” for your situation they have done enough to meet the standard. What this can mean is that although there can be lower cost options with similar or better performance for a like investment, they are not required to consider those factors to the extent that an Investment Advisor (Fiduciary) would be required to do so. In addition to this, the compensation of a Fiduciary Investment Advisor vs a Broker are far different as well: the Investment Advisor will have a fee schedule that eliminates conflict of interest: for example they are paid for planning and not for your holdings or commissions whereas the broker is transnational in their compensation most often (e.g. they are paid by the commissions and products that clients buy or sell in their accounts).

Why this can make you feel like you’re being sold to:

A Fiduciary will be very objective in the advice and guidance that is given, with the best ones making sure to connect their advice specifically to your goals, needs and objectives with complete transparency. Any conflicts of interest are required to be disclosed to clients as part of their consideration to formally work with the Fiduciary or Investment advisor. However, in the case of non-fiduciaries there is not the same standard in place and therefore it can lead towards positioning of certain products or services that may not be the most cost-efficient options for you as the investor. This simply can be since a higher compensation has created a conflict of interest for what they propose and how they propose it. Furthermore, because the suitability standard only requires that the investment be “suitable” it can mean that the investment type (for example large cap value stock fund) is “suitable” although it may not be the most cost-efficient way for you to gain the exposure. As previously mentioned, it can also simply be that the delivery style of a professional may give you certain feelings that you are being “sold to” rather than guided or advised. Make no mistake, this article is intended to differentiate the registrations your professional may hold and what standards that holds them to in order to bring more clarity – there are many brokers that although not held to the higher standard do feel a moral and personal obligation to consider these things.

How to tell if you have a fiduciary?

One of the simple ways is to simply ask your professional if they are a fiduciary or not, this can be a straightforward way to tackle the question and associated conversation. You also can ask how they are compensated during this conversation in order to see if there are any conflicts that present themselves during the conversation. Fiduciaries who are registered investment advisors have a requirement to provide these in writing to you as a client, if you are not able to get something provided in this format you may want to look further into things as well. Another way is to research your professional on broker-check in order to see the registration that they hold – is it broker/dealer or investment advisor? In some cases, it can be both, and that can make things more complicated as they are held to different standards in different situations. A final way that you can get a better sense of things is to get a second opinion: find a fiduciary such as Coastal Wealth Planners and have a review done to take an objective approach while giving insight on your situation.

Want to discuss this further?

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