Advertisement
Financial Planning

The Fiduciary Difference

Ask potential advisers if they adhere to the fiduciary standard or suitability standard to find out whether they'll put your best interests first.

In light of recent changes in the financial services industry, many consumers are wondering if their financial adviser is a fiduciary. Allow me to point out the differences between an investment adviser performing to the fiduciary standard and other advisers adhering to the suitability standard.

The Fiduciary Duty

Seeking out an investment adviser who will act as your fiduciary can help eliminate many of the problems associated with working with someone who may be oriented toward commissions and making sales bringing about a conflict of interest. Fiduciary care embodies the highest standard of excellence and requires six core duties. Be sure that your adviser performs those duties, as outlined in the following:

Advertisement - Article continues below

1. Serve the client's best interest first, last and always. When your adviser makes a recommendation, it means that a superior option is not available.

2. Act in utmost good faith by adopting the client goals as the adviser goals. You and your adviser should clearly communicate with each other, both orally and in writing.

3. Act prudently, with the care, skill and judgment of a professional. You should make sure your adviser is maintaining continual education and the skills required to properly advise you.

4. Avoid and manage conflicts of interest. If a conflict exists, your adviser should disclose the conflict and explain how it will be managed to your benefit.

Advertisement
Advertisement - Article continues below

5. Fully disclose all material facts. Your adviser should provide you with a statement of fees and investment expenses. If a third payment exists to the adviser, firm or anyone associated to the recommendation he or she has given you, a full disclosure should be made.

Advertisement - Article continues below

6. Control investment expenses through analysis of peer group rankings and making certain investment expenses are reasonable. Be sure your adviser is not charging you exorbitant fees.

The Suitability Standard

In contrast, a stockbroker is any person engaged in the business of effecting transactions for the account of others. When the broker recommends to buy or sell a particular security, he or she must have a reasonable basis for believing that the recommendation is suitable for you. In making the assessment, your broker must consider your income and net worth, investment objectives, risk tolerance and other security holdings.

Brokers may go by different titles, such as wealth managers, wealth advisers or financial advisers. Regardless of their titles, stockbrokers are generally not considered to have a fiduciary duty to the client. Instead of being obligated to put their clients' interests ahead of their own, brokers are only expected to deal fairly with their clients and provide suitable options.

How do you know if you are working with an advisory applying the fiduciary standard or an adviser applying the suitability standard? Ask the adviser what standard they are performing to and if they provide a signed pledged attesting that they do in fact perform to the six core duties. It's the best way to ensure you're getting the best advice available.

Con Reha is president of Lincoln, Neb.,-based Liberty Advisers. Over a 45-year career, he has helped many individuals, families and small business owners with successful personal financial planning.

About the Author

Con Reha

President, Liberty Advisers

Over a 45-year career, Mr. Reha has helped many individuals, families, and small business owners with successful personal financial planning.

A graduate of the University of Phoenix, Mr. Reha holds a Bachelor of Arts degree in management. He has also completed his Advanced Certification in Financial Planning at Metropolitan College in Denver, Colorado; holds an Advanced Certification in Professional Management from Purdue University, and is a Graduate of the Decker School of Communication. He holds the Securities Series 65 license and is also a licensed life insurance agent.

Mr. Reha is a past member of the Board of Directors for the Boys and Girls Club of Lincoln. Mr. Reha and his wife Diane live in Lincoln, Nebraska. They are the parents of five grown sons and the proud grandparents to twelve grand-children. Mr. Reha was born and raised in rural Iowa.

Advertisement

Most Popular

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)
tax deadline

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)

Between due dates for IRA or HSA contributions, paying estimated taxes and other deadlines, there's more to do by July 15 than just filing your federa…
July 10, 2020
65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
Know Why Your Credit Score Changes: 9 Money Moves to Consider
credit & debt

Know Why Your Credit Score Changes: 9 Money Moves to Consider

Your credit score is a key indicator of your financial well-being and of the risk you pose to lenders. How good is yours?
July 10, 2020

Recommended

Closing Bell 7/10/20: Gilead Gives Stocks a Booster Shot
Markets

Closing Bell 7/10/20: Gilead Gives Stocks a Booster Shot

Stocks rallied out of negative territory Friday after Gilead announced that remdesivir helped reduce COVID-19 mortality risk in a clinical trial.
July 10, 2020
2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 10, 2020
Closing Bell 7/9/20: Another Split Market as Jobs Concerns Grow
Markets

Closing Bell 7/9/20: Another Split Market as Jobs Concerns Grow

A mounting list of planned playoffs weighs on stocks Thursday, though Big Tech manages to hoist the Nasdaq up to another record high.
July 9, 2020
Closing Bell 7/8/20: Tech Stocks Lead Wall Street Forward Again
Markets

Closing Bell 7/8/20: Tech Stocks Lead Wall Street Forward Again

U.S coronavirus cases continue to spike, but Apple helped lead another Big Tech rally to drive the major indices higher Wednesday.
July 8, 2020