Is Your Advisor a Fiduciary? Probably Not, What That Means for You
Something that often surprises people is that the advisors and institutions they place in the care of their assets often aren’t held to the fiduciary standard. “Advisor” models of the past saw advisors spring up from brokerages, presenting that they hold client’s best interest in mind, although not held to this standard by any metric as they are in essence, salesman. This can be said for most firms, most of whom were founded on this old model, although the future looks a little difference.
While we aren’t saying that there is certainly going to be a conflict of interest from a firm that isn’t held as a fiduciary, what we are saying is that it is certainly possible. You might be surprised to know that some major firms will even run incentives for advisors to push certain products on a seasonal basis. For example, Firm A could notice that Life Insurance numbers are down for the fiscal year and offer ‘advisors’ a bonus on all new life insurance contracts. You might even be thinking about a time that your advisor suddenly thought a new policy was a great idea, and then you never heard much more about it. For me, it seems a little more than unethical to build a guise that we have nothing more than a client’s goals in mind and finding the most efficient and effective means to achieving this, when there’s a quota on products to sell.
The model of the future is a fiduciary. No quotas. No hidden agendas. Fee based advisors have begun popping up more and more across the country, and all this means is an advisor accepts only a fee, no commissions. Often, these firms are held to the fiduciary standard, meaning we legally must do what is right for you, not what makes us, or the firm, the most money. Zelus is classified as a fee only advisor, that is held to the fiduciary standard. This isn’t to say that any advisor that charges a fee is fee only. You’d be surprised to know most of the brokerage based advisory firms charge a fee and commission.
There is a lot of great advice out there, but there is also some that, for lack of a better word, can become ‘clouded.’ If you don’t know whether or not your advisor is held to the fiduciary standard, you might be surprised to know that the majority of advisors are not. There is a fundamental difference between advisors tied to brokerages and those that are working as a Registered Investment Advisor.
-Colin Feller