The Critical Importance of Financial Fiduciaries
Very few investors know the critical importance of selecting an investment fiduciary as their financial advisor. That's because the financial securities industry deliberately blurs the distinctions so lower quality sales representatives can sell you their products for substantial fees and commissions.
It is important to know there are two primary types of investment advisors and not one. Following is a brief description of each type so you know the differences.
Fiduciary advisors have the following characteristics:
They are Registered Investment Advisors (RIAs) or Investment Advisor Representatives (IARs)
- RIAs and IARs are held to the highest ethical standards in the industry
- They are the only professionals who can provide financial advice and ongoing services for fees
- They are required to put investor interests ahead of their own interests
They frequently use job descriptions such as: Financial Advisor, Investment Advisor, Financial Consultant, Financial Planner, Money Manager
They acknowledge they are fiduciaries when they provide investment advice and services for fees
Non-fiduciary advisors (sales representatives) have the following characteristics:
They hold securities licenses, such as Series 6 and 7
There are held to much lower ethical standards than RIAs and IARs
- They are required to make "suitable" investment recommendatons
- Suitable is a vague standard because it can vary by investor
Their job descriptions can be sales representative, investment representative, financial planner, financial consultant (note the overlap with real advisors)
Their licenses limit them to selling investment products for commissions
- They are not allowed to charge fees for their advice and services
They are not fiduciaries because they do not hold RIA or IAR registrations
The critical question you should be asking yourself is do you want a sales representative investing assets that will impact your standard of living during retirement and your financial security late in life? If your answer is no, and it should be, then you should limit your selection to fiduciary advisors.