Jason’s Financial Favorites: Your Full-Time Fiduciary
* This article was originally published on Dec. 11, 2019. It has been updated for 2021.
It’s a word you probably became familiar with before you started working with us. Back when you were searching for a financial professional to work with, you likely saw many online sources suggesting that the first question you ask a financial pro is, “Are you a fiduciary?” You may also have seen it in advertising on websites, business cards, or billboards.
… but, even if you’ve heard it before, do you know what “fiduciary” means?
The dictionary definition of the noun “fiduciary” is “one that holds a fiduciary relation or acts in a fiduciary capacity.” What?
As an adjective, “fiduciary” means “of, relating to, or involving a confidence or trust: such as a) held or founded in trust or confidence, b) holding in trust, c) depending on public confidence for value or currency.”
While the adjective description is better, the definitions still aren’t exactly clear. Sure, the keywords “confidence” and “trust” may stand out. And while they’re familiar words that paint a certain picture of a financial professional, that probably still leaves you with the question of what “fiduciary” actually means — and why it’s important, especially in the financial planning world.
Much more than a definition
You’ve probably heard me say that, as a fiduciary firm, all of us on the FPFoCo team are required to act in your best interest at all times. You may also know that registered investment advisors are obligated to act as fiduciaries. That’s because registered investment advisors are in the business of offering advice, so they can’t put anyone’s interests, including their own, ahead of yours.
And while my explanation includes “at all times,” that doesn’t necessarily apply to every registered investment advisor. Even with the Securities and Exchange Commission’s Regulation Best Interest (Reg BI) ruling a couple of years back, a double standard exists. In fact, many investment advisors can already “switch hats,” following the fiduciary standard for one situation and moving to the Reg BI standard the next.
How is that possible? Some financial professionals are dually registered as investment advisors and representatives of a broker-dealer. This is where the term “fee-based” comes from. Without additional affiliation, a registered investment advisor can only receive compensation from clients for the advice he or she gives those clients. Representatives of broker-dealers can also receive commissions and other compensation for the products they sell. Put both together, and it means that dually registered pros are required to be fiduciaries when acting as investment advisors, but they can change standards when they “switch hats” and act as broker-dealer representatives.
How do you know when a financial professional is acting in which capacity? In a perfect world, all financial professionals would adhere to the fiduciary standard of care. Unfortunately, perfect our world is not.
The fiduciary and best-interest standards
To better understand these capacities, here’s how the fiduciary and best interest standards work:
Fiduciary standard: Financial professionals operating under the fiduciary standard are required to never put their own interests ahead of their clients in all situations and circumstances.
Best-interest standard: Brought about by the SEC’s Reg BI, this standard requires brokers to act in their clients’ best interest when making securities transaction recommendations. The rule requires adherence to four key obligations: disclosure, care, conflicts (and how they’re managed), and compliance.
Perhaps the most obvious question is, aren’t the fiduciary and best-interest standards essentially the same thing? That’s where the situation gets murky. Adding to the confusion is that the SEC didn’t define what “best interest” means in Reg BI — all we know is that, by design, it is not a fiduciary standard (or else they would simply call it that and skip 1,100-plus pages of rules, regulations, and exceptions).
But that’s not the only confusing part. To meet the best-interest standard, broker-dealers must disclose conflicts of interest to their clients, use care when making recommendations, address those conflicts of interest, and generally otherwise be in compliance with Reg BI. Part of that compliance means financial professionals registered only with broker-dealers won’t be able to call themselves advisors — but those with dual registrations will. That means Reg BI will only apply to dual registrants when they act as brokers — but not when they act as investment advisors, which requires the fiduciary standard.
Isn’t there a way to make it easier?
Your Full-Time Fiduciary
Yes! We’re your full-time fiduciary. And it really is that simple. In fact, we are so passionate about our unwavering fiduciary duty to our clients that we’ve trademarked the term “Your Full-Time Fiduciary™.”
By acting in your best interest 100% of the time, you know that we’re putting you first 100% of the time.
You can also check us out on the SEC’s Investment Advisor Public Disclosure (IAPD) website. Just type in one of our team member’s names or the firm information, and it will populate results, including our registration information.
Want us to sign a fiduciary oath or acknowledgment? You got it! Your client agreement includes an acknowledgment of our fiduciary status.
If you’d like to learn more about how we work with clients like you, feel free to check out our Form ADV Part 2A. And, even though we’re not required to provide it, we voluntarily offer Form ADV Part 3. There, you’ll find an easy-to-understand summary of how we work with clients like you. We encourage you to take a look and ask questions.
After all, we’re not just a full-time fiduciary. We’re your full-time fiduciary.
Not a client yet? See if our ensemble approach is right for you.