A fiduciary is someone in who complete faith and trust is placed to act on another’s behalf under circumstances in which trust, faith, and honesty is required. A fiduciary has greater knowledge and expertise about the matters being handled. A fiduciary must avoid "self-dealing" or "conflicts of interests" in which the potential benefit to the fiduciary is in conflict with what is best for the person who trusts them. It follows that the best interest of the beneficiary must be primary, and absolute candor is required of the fiduciary.
It’s easy to imagine that everyone who offers advice is the same. There is an essential difference between advisors and the standards to which they are bound. A broker is an agent who sells products approved by his firm from their inventory which can mean these products are not best quality and can put his firm’s interest ahead of your interest. A key distinction is a broker’s duty is to the broker dealer who employers them not necessarily the clients.
Investment advisors are bound by federal law (Investment Advisors Act of 1940) and are required to put their client’s interests above their own. Avoiding conflicts of interest is important when acting as a fiduciary and means an advisor must disclose any potential conflicts to placing the client’s interest ahead of the advisors.
The most notable potential conflict occurs when an investment is suitable for a client but has a higher commission or transaction fees which can incentive a broker to sell their own products when lower cost products may be available. Even advisors offering fiduciary advice but working for the biggest brand names on Wall Street are not fiduciaries. It may be fiduciary advice but it’s not full time fiduciary behavior because there is not full time adherence to a fiduciary standard.
So are you in first place treated under a fiduciary standard or are you in second place under a suitability standard by an advisor-broker whose first loyalty is to his employer, which puts you in third and last place. Does your treatment depend on the product being sold so you never know where you stand?
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