It seems like everyone says they can be trusted. Over and over, you’ll hear financial professionals describe themselves with words designed to gain your confidence.  But… when it comes to your savings and investments, who can you trust? That’s where “Fiduciary” comes in. It’s part of an actual legal term – Fiduciary Duty.

The White House Council of Economic Advisers (“CEA”) states that “Savers receiving conflicted advice earn returns roughly 1 percentage point lower each year (for example, conflicted advice reduces what would be a 6 percent return to a 5 percent return). [1]

That means, using the CEA estimates, an investor putting away $10,000 each year, for 35 years, could experience a net of more than $230,000 less if they’re getting conflicted advice.


Those who are not committed to the fiduciary standard are required to adhere to the suitability standard. Here’s a brief overview of the two standards. [2]

 

FIDUCIARY STANDARD

Fundamental Question: What is BEST for the client?

Conflicts of Interest: Complete compensation & conflict disclosure required.

A contractual, written agreement in which the advisor states they are a Fiduciary.

Adviser must disclose and manage conflicts of interest.

SUITABILITY STANDARD

Fundamental Question: Is the product “reasonable” for the client?

Conflicts of Interest: Minimal or no compensation or conflict disclosure required.

Does not currently require a written agreement.

No current requirement to disclose conflicts of interest.


Someone can tell you they’re working in your best interests, but “fiduciary” is a legal concept with a code of ethics and consequences if you fail your obligation. It’s not just a different philosophy, it’s a substantially different business model.



[1] https://www.whitehouse.gov/sites/default/files/docs/cea_coi_report_final.pdf

[2] http://fiduciarylife.com/fiduciary-vs-suitability/[3] http://spectrem.com/Content_Whitepaper/fiduciary.aspx[4] http://riabiz.com/a/2014/12/18/cerullis-new-numbers-buttress-the-rias-supplant-brokers-theorem-with-40-market-share-jump-seen-by-2018

 

 

 

 

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