If you’re researching advisors, you may find yourself asking what is a fiduciary financial advisor? How do you know if your financial advisor is a fiduciary? And what’s the difference? Financial titles can be confusing, so we’re here to provide some clarity.
A fiduciary is any person or entity that has a legal responsibility to act in good faith for a beneficiary. In the financial world, this translates to any advisor or firm who has the fiduciary duty to act in your best interest when it comes to financial planning and investment management.
By the end of this article, we hope that you have a better understanding of the benefits of hiring a fiduciary financial advisor Houston, how they differ from a broker-dealer, and be able to recognize the difference in Avidian’s approach to holistic wealth management.
What does it mean if your financial advisor is a fiduciary?
A fiduciary financial advisor’s responsibilities are both legal and ethical. They are held to the highest duty of care, meaning that they have a fiduciary responsibility that requires them to make decisions in good faith and in a prudent manner. This includes disclosing and avoiding conflict of interests (when the duty to act solely in your best interests is compromised or impeded by any other interests).
According to the Security and Exchange Commission (SEC), fiduciary duty includes:
- Acting with undivided loyalty and good faith
- Providing beneficiary with full and fair disclosure of all facts
- Eliminate and expose any potential conflicts of interests
- Serve clients best interests at all times without subordinating client’s interests to their own
If a fiduciary firm or advisor does not follow the above standard, they risk the revocation of their registration and legal action may be taken against them.
How to know if your financial advisor is a fiduciary
When hiring a financial advisor, you cannot implicitly trust that they will put your interests before those of their investors, themselves, or their entity unless they are a fiduciary. If the financial professional you are working with is an Investment Adviser Representative (that is, associated with a Registered Investment Adviser, or RIA), then they are a fiduciary.
To be certain you are working with a fiduciary financial adviser, simply ask them.
Fiduciary vs Broker-dealer
At the beginning of 2020, the Security and Exchange Commission (SEC) passed a new regulation called “Regulation Best Interest” or “Reg BI” that acts as a new standard of care for broker-dealers.
Previously, financial broker-dealers were only held to the suitability standard, which solely required fair dealing and best execution so long as the advisor thought it was in your best interest. This left room for the broker-dealer to act in his/her own best interests as long as his/her recommendations were considered suitable — regardless of whether it was the best financial decision for you.
The Reg BI buttons up this process, requiring broker-dealers to act in the customer’s best interest before their own. Although this is a step up from requiring broker-dealers and advisors recommendations to be “suitable” to the client, there is still a way to go before they meet the duty of care required by a fiduciary.
When it comes to investment advice, taxes, retirement, finances, and/or estate planning in Houston, you want to be certain you are working with someone who is serving your interests first. Here are a few (of the many) differences to consider between a broker-dealer and a fiduciary wealth advisor.
- Follows tax/ estate/ charitable law changes and what impact these changes have on wealthy families
- Avoids getting caught up in fads and appreciates a more conservative approach
- Often follows what investment company wholesalers are promoting
- Follows latest hot investment products or stock, and looks for new investment ideas (shiny objects) to sell
Meeting Review Topics
- Cash flow and budget — long-term cash flow projection
- Financial plan review, tax/charitable projection, estate/insurance review, overall allocation review
- Investment portfolio review, short-term investment performance focus (less than 12 months), commentary about the market or economy
- Can review and discuss tax strategies with clients and provide tax planning in Houston as it is not what an investor makes that counts… it is what he or she keeps that counts (i.e., your after-tax return)
- Is not typically allowed to discuss tax strategies if not immediately related to investment management
- Does not receive commissions for buying/selling
- May receive commission for buying/selling that are not transparent/disclosed
- Receives additional and separate compensation for selling certain investment products, bank products, mortgages, credit cards, etc. making it difficult to act without potential conflict of interest
Is a fiduciary advisor worth it?
If you’re a high-net-worth investor considering finding a financial advisor, it’s in your benefit to hire someone who follows the fiduciary standard of care. Unlike non-fiduciary advisors who are held only to Reg BI, a fiduciary financial advisor has a fiduciary duty to act on your behalf.
Benefits of working with a fiduciary advisor
Avidian Wealth Solutions is proudly held to the fiduciary standard. As such, we not only promise to work in your best interests, but we are also legally required to.
Here are several of the many benefits to working with our team of fiduciary advisors:
- You receive accurate, honest, and thorough financial advice aligned with your goals and objectives
- We act in good faith and provide you with all of the relevant facts
- Any conflicts of interest will be avoided and disclosed to you
- We are fully transparent about our compensation
- Your best interests will always be placed before our own
This is the Avidian difference.
Avidian Wealth Solutions in Houston
Avidian is a fee-only, independent fiduciary wealth management firm made up of Certified Financial Planners®, Certified Public Accountants, MBAs, Attorneys, and Chartered Financial Analysts.
As fiduciaries, Avidian is held to the highest standard of care. We are conservative, disciplined, and here to make a positive impact in the lives of the families we serve by helping them make informed financial decisions. Request a meeting with us today!
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