Why Work with a Fiduciary Financial Advisor?

The difference you need to know.

 

Financial advisors fall into two camps –– fiduciaries and non-fiduciaries.    It’s important to know the difference when choosing a financial advisor, whatever your age, income level or wealth.  Generally under current laws and regulations, a fiduciary is held to a more strict “fiduciary standard” versus the less strict “suitability standard” for non-fiduciaries. 

 

In a nutshell, fiduciary financial advisors are required by law to put their clients’ interests ahead of their own.  That may sound obvious, but it’s not necessarily the case.  By example, if an advisor favors or otherwise is influenced to engage his or her clients in investments that may benefit the interests and compensation of the advisor more so than the client... he or she may not be acting as a fiduciary.

 

What is a fiduciary?

 

A fiduciary is a person or legal entity (bank or brokerage firm) that has the power to act on behalf of another (client, beneficiary, principal) in situations requiring total trust, good faith and honesty.

 

The fiduciary standard means a fiduciary financial advisor must by law put client interests first and foremost.  The advisor cannot exploit his or her position of trust and confidence for personal gain at the expense of the client. Fiduciaries have a “duty to care”.  This means they are expected to continually monitor a client’s investments and financial situation and adhere to best practices of conduct for the duration of the advisor/client relationship.

 

According to the Securities and Exchange Commission, which regulates registered investment advisors as fiduciaries, the fiduciary duty also includes...*

  • Acting with undivided loyalty and utmost good faith
  • Providing full and fair disclosure of all material facts, defined as those which “a reasonable investor would consider to be important”
  • Not misleading clients
  • Disclosing all conflicts of interest to clients (such as when the advisor profits more if a client uses one investment instead of another)
  • Not using a client’s assets for the advisor’s own benefit or the benefit of other clients

 

What is a non-fiduciary?

 

By comparison, a non-fiduciary financial advisor is held only to the suitability standard, which does not require the advisor to recommend the best possible investments for the client’s goals.  A recommended investment needs only to be “suitable”, which means the advisor is allowed to choose investments that may or may not be totally appropriate for client goals and/or reward the advisor with fees or compensation that may differ by the investments chosen.

 

Should you expect every financial advisor to act as a fiduciary?

 

No, brokerage firms that are not acting as a registered investment adviser are subject to the suitability standard, not the fiduciary standard.  With the recent demise of the Department of Labor Fiduciary Rule this has become even more pronounced

 

Lenox –- Strictly financial fiduciaries

 

At Lenox, we faithfully serve as financial fiduciaries, seeking to make each financial decision in the best interest of the client.  We embrace the new CFP Board rules scheduled to go into effect in October, 2019, which mandate all holders of a CFP- Certified Financial Planner who engage in financial advice be held to a stricter fiduciary standard than previously demanded. Lenox has been living this higher standard since our inception, versus some brokerage firms that are resisting the change. **

 

If you have questions about working with a financial fiduciary advisor, give us a call.  We’re happy to share more details with you at any time.

 

*    US News-Money March 21, 2018

**  wealthmanagement.com  “Will Brokerages Comply with CFP Board’s New Fiduciary Standard?”  March 29, 2018

 

At Lenox, we work with clients to help guide them in every aspect of their financial life –– from setting financial priorities and optimizing income, to eliminating debt, establishing budgets, funding education, retirement planning, and working through financial hurdles –– the entire realm of wealth creation, wealth building, and wealth management.  We start with you, not your portfolio to help you FUND A LIFE YOU LOVE™.

 

If you’re ready to discuss financial, business, career and life planning that will allow you to Fund a Life You Love®, we’d love to tell you more.  Let’s talk.  It’s your tomorrow. Call us for a complimentary 1-hour review.  Call 513.618.7080 or visit www.lenoxwealth.com to Fund a Life You Love.

 

Past Performance is not indicative of future results.

This blog is limited to the dissemination of general information pertaining to its investment advisory/management services. This is not intended to be personalized investment advice. Please contact a Lenox adviser if you would like additional information.