Advisor (Fiduciary) v Broker (Non-Fiduciary)
Author: Christopher Abla APMA®, AWMA®, AAMS®, CRPC®
Christopher Abla is a Private Wealth Advisor and Investment Advisor Representative with CWM, LLC, an SEC Registered Investment Advisor.
The marketplace may not yet understand that there is a significant difference between investment brokers / insurance representatives (non-fiduciaries) and a Registered Investment Advisor (Fiduciary). The Commissioner of the Securities and Exchange Commission (SEC) – Michael Piwowar – was recently quoted as saying “You shouldn’t be able to use the word ‘advisor’ – spelled with an ‘o’ or an ‘e’ – unless you are subject to the investment adviser fiduciary standard”.
Non-Fiduciaries: The Financial Industry Regulatory Authority (FINRA) regulates the broker-dealer industry and requires securities brokers to make suitable recommendations to their clients. The suitability standard only requires that the broker reasonably believe that the recommendations they are making are suitable for the client at the time of the transaction.
Fiduciary: Investment advisors are bound to a fiduciary standard that was established with the passage of the Investment Advisors Act of 1940. The language of the act is specific in declaring that an advisor must place their interests (and that of their firm) below that of the client. It also consists of a duty of loyalty and care, meaning that the advisor must always act in the best interests of the client. Therefore, the fiduciary has a legal obligation to their clients and always exercising due care in offering advice and counsel.
Often investors are confused by the different titles that a financial professional will use and wrongfully assume that all titles / advisors are the same.
How to determine if your advisor is a fiduciary:
- Ask them – if they are reluctant to disclose their status ………. Not a fiduciary
- Understand how they are compensated
- Are you charged fees or commissions? ….. fiduciaries charge a fee only and are NOT compensated based on commissions.
- Are they an Investment Advisory Representative?…….. check the ADV (https://www.sec.gov/fast-answers/answersformadvhtm.html) or on the firm’s website
If you have questions or would like to request a personal consultation with a Registered Investment Advisor (Fiduciary) you may contact us by calling 423.247.8840