Fiduciary
A fiduciary is legally required to place the client's interests first.
The fiduciary standard requires that Registered Investment Advisors act without the influence of conflicts of interest.
Conflicts can be created by commissions, bonuses, sales contests and quotas. These conflicts can be very common in the brokerage, banking and insurance industries.
This high standard applies to Registered Investment Advisors but not to brokers, bankers or insurance agents.
Fewer than one in twelve financial advisors are fiduciaries.
Source: Paladin Registry
This is because fiduciaries are held to higher ethical standards, have greater responsibility and are more limited in compensation.
Black's Law Dictionary describes FIDUCIARY as follows:
The term is derived from the Roman law, and means (as a noun) a person holding the character of a trustee, or a character analogous to that of a trustee in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires. Thus, a person is a fiduciary who is invested with rights and powers to be exercised for the benefit of another person. As an adjective it means of the nature of a trust; having the characteristics of a trust; analogous to a trust; relating to or founded upon a trust or confidence.
The term is derived from the Roman law, and means (as a noun) a person holding the character of a trustee, or a character analogous to that of a trustee in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires. Thus, a person is a fiduciary who is invested with rights and powers to be exercised for the benefit of another person. As an adjective it means of the nature of a trust; having the characteristics of a trust; analogous to a trust; relating to or founded upon a trust or confidence.
Registered Investment Advisor versus Broker:
Although many brokers offer investment advice and financial planning services (and often portray themselves as "advisors" in their marketing materials), there are fundamental differences between a broker and an independent Registered Investment Advisor (RIA) like Safe Harbor Capital Management.
Broker - In the business of selling investment products.
RIA - In the business of providing advice and counsel.
Broker - Employee of the a brokerage firm and owes their loyalty to their employer.
RIA - Independent and owes their loyalty solely to the client.
Broker - Often compensated by commissions on transactions; not required to disclose compensation on all transactions.
RIA - Compensated by fees all of which must be fully disclosed in writing.
Broker - Self-regulated by FINRA (formerly NASD - National Association of Securities Dealers).
RIA - Regulated by the Securities and Exchange Commission and state agencies.
Broker - Held to "suitability standard". Must make recommendations that are "suitable" for the investor.
RIA - Held to the fiduciary standard. Required to place the clients' interest above all else.
Are you receiving the Fiduciary Standard of Care?
Safe Harbor Capital Management LLC is an independent
Registered Investment Advisor seeking superior investment results by investing in excellent companies under the fiduciary standard of care.
*While the fiduciary standard requires that an advisor have no conflicts of interest, it does not guarantee any investment results or outcomes.
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As a fiduciary we work without sales pressure.
Fiduciary Financial Planner/Advisor
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More on Fiduciary from the Paladin Registry:
Financial Fiduciaries
The fiduciary status of a financial advisor is critical because it impacts the achievement of your financial goals.
A fiduciary is a person who holds a position of trust. Who holds a bigger position of trust than a person who influences or controls the investment of your assets?
Awareness
The fiduciary status of a financial advisor is extremely important:
A Critical Distinction
In the financial service industry there are fiduciaries and non-fiduciaries. The difference between the two may determine when you retire, how you live during retirement, and your financial security late in life.
Who is a Fiduciary?
Financial firms and professionals, who sell financial advice and ongoing services for fees, are fiduciaries. They have one of the following registrations:
Who is not a Fiduciary?
Financial firms and professionals, who sell investment products for commissions, are not fiduciaires. They have one of the following types of licenses:
Two Ethical Standards
There are two ethical standards in the financial service industry:
Wall Street
You may be wondering why Wall Street firms fight fiduciary standards for hundreds of thousands of stockbrokers. Again, the answer is money! Wall Street makes more money doing what is best for its firms. It makes a lot less money doing what is best for you.
Wall Street's strategy is to blur the distinctions between fiduciaries and non-fiduciaries - consequently, everyone is a financial advisor. The strategy works. Very few investors know the issue exists or how it impacts them.
Financial Fiduciaries
The fiduciary status of a financial advisor is critical because it impacts the achievement of your financial goals.
A fiduciary is a person who holds a position of trust. Who holds a bigger position of trust than a person who influences or controls the investment of your assets?
Awareness
The fiduciary status of a financial advisor is extremely important:
- Financial fiduciaries are held to the highest ethical standards in the industry
- Sales representatives are held to much lower ethical standards
- Always select a financial fiduciary to be your advisor
A Critical Distinction
In the financial service industry there are fiduciaries and non-fiduciaries. The difference between the two may determine when you retire, how you live during retirement, and your financial security late in life.
Who is a Fiduciary?
Financial firms and professionals, who sell financial advice and ongoing services for fees, are fiduciaries. They have one of the following registrations:
- RIAs (Registered Investment Advisors) are firms
- IARs (Investment Advisor Representatives) are professionals who are registered with RIAs
Who is not a Fiduciary?
Financial firms and professionals, who sell investment products for commissions, are not fiduciaires. They have one of the following types of licenses:
- Broker/Dealers are firms
- Stockbrokers sell products for the broker/dealers
Two Ethical Standards
There are two ethical standards in the financial service industry:
- Financial fiduciary is the highest ethical standard. Investor interests come first
- Suitability* is a lower ethical standard. Investor interests do not have to come first
Wall Street
You may be wondering why Wall Street firms fight fiduciary standards for hundreds of thousands of stockbrokers. Again, the answer is money! Wall Street makes more money doing what is best for its firms. It makes a lot less money doing what is best for you.
Wall Street's strategy is to blur the distinctions between fiduciaries and non-fiduciaries - consequently, everyone is a financial advisor. The strategy works. Very few investors know the issue exists or how it impacts them.
More on Financial Advisor from Investopedia
What is a 'Financial Advisor'?
A financial advisor provides financial advice or guidance to customers for compensation. Financial advisors, or advisers, can provide many different services, such as investment management, income tax preparation and estate planning. They must carry the Series 65 license to conduct business with the public; a wide variety of licenses are available for the services provided by a financial advisor.
BREAKING DOWN 'Financial Advisor'
"Financial advisor" is a generic term with no precise industry definition, and many different types of financial professionals fall into this general category. Stockbrokers, insurance agents, tax preparers, investment managers and financial planners are all members of this group. Estate planners and bankers may also fall under this umbrella.
Different Examples of Financial Advisors
What may pass as a financial advisor in some instances may be a product salesperson, such as a stockbroker or a life insurance agent. A true financial advisor should be a well-educated, credentialed, experienced, financial professional who works on behalf of his clients as opposed to serving the interests of a financial institution. Generally, a financial advisor is an independent practitioner who operates in a fiduciary capacity in which a client’s interests come before his own. Only Registered Investment Advisors (RIA), who are governed by the Investment Advisers Act of 1940, are held to a true fiduciary standard. There are some agents and brokers who try to practice in this capacity, however, their compensation structure is such that they are bound by the contracts of the companies where they work.
The Fiduciary Distinction
Since the enactment of the Investment Adviser Act of 1940, two types of relationships have existed between financial intermediaries and their clients. These are the “arms length” relationship that characterizes the transactions between registered representatives and clients in the broker-dealer space, and the fiduciary relationship that requires advisors registered with the Securities and Exchange Commission (SEC) as Registered Investment Advisors to exercise duties of loyalty, care and full disclosure in their interactions with clients. While the former is based on the principle of “caveat emptor” guided by self-governed rules of “suitability” and “reasonableness” in recommending an investment product or strategy, the latter is grounded in federal laws that impose the highest ethical standards. At its core, the fiduciary relationship relies on the necessity that a financial advisor must act on behalf of a client in a way the client would act for himself if he had the requisite knowledge and skills to do so.
What is a 'Financial Advisor'?
A financial advisor provides financial advice or guidance to customers for compensation. Financial advisors, or advisers, can provide many different services, such as investment management, income tax preparation and estate planning. They must carry the Series 65 license to conduct business with the public; a wide variety of licenses are available for the services provided by a financial advisor.
BREAKING DOWN 'Financial Advisor'
"Financial advisor" is a generic term with no precise industry definition, and many different types of financial professionals fall into this general category. Stockbrokers, insurance agents, tax preparers, investment managers and financial planners are all members of this group. Estate planners and bankers may also fall under this umbrella.
Different Examples of Financial Advisors
What may pass as a financial advisor in some instances may be a product salesperson, such as a stockbroker or a life insurance agent. A true financial advisor should be a well-educated, credentialed, experienced, financial professional who works on behalf of his clients as opposed to serving the interests of a financial institution. Generally, a financial advisor is an independent practitioner who operates in a fiduciary capacity in which a client’s interests come before his own. Only Registered Investment Advisors (RIA), who are governed by the Investment Advisers Act of 1940, are held to a true fiduciary standard. There are some agents and brokers who try to practice in this capacity, however, their compensation structure is such that they are bound by the contracts of the companies where they work.
The Fiduciary Distinction
Since the enactment of the Investment Adviser Act of 1940, two types of relationships have existed between financial intermediaries and their clients. These are the “arms length” relationship that characterizes the transactions between registered representatives and clients in the broker-dealer space, and the fiduciary relationship that requires advisors registered with the Securities and Exchange Commission (SEC) as Registered Investment Advisors to exercise duties of loyalty, care and full disclosure in their interactions with clients. While the former is based on the principle of “caveat emptor” guided by self-governed rules of “suitability” and “reasonableness” in recommending an investment product or strategy, the latter is grounded in federal laws that impose the highest ethical standards. At its core, the fiduciary relationship relies on the necessity that a financial advisor must act on behalf of a client in a way the client would act for himself if he had the requisite knowledge and skills to do so.
