This represents a REAL problem! This compensation is oftentimes not disclosed, is confusing and is frankly, often misleading. Whereas advisors that don’t adhere to the fiduciary standard are able to be compensated in that same way but in addition, are also able to receive additional non-transparent compensation from the investment products themselves. Generally, fee-only financial advisors are compensated ONLY by transparent, agreed upon, black and white fees that appear directly on your account statement represented in dollars and cents. One issue is the way compensation is received by a financial advisor. Generally, fee-only Registered Investment Advisory firms adhere to the fiduciary standard 100% of the time. But when you think about it, the standards are quite different. Many brokers or financial advisors make investment recommendations that are merely suitable some or all the time as opposed to acting in their client’s best interest ALL the time. One is the fiduciary standard which we have just discussed.
There are two standards you need to understand. Are you surprised by that? Many people are. In layman’s terms, these advisors are either required to act in their client’s best interest all the time, some of the time or not at all. In the world of financial advice, there are financial advisors that are fiduciaries all the time, financial advisors that are NOT fiduciaries and financial advisors that are fiduciaries some of the time. Similarly, in a case where someone else has decision making power concerning someone else’s assets, a fiduciary standard can apply. This duty is summarized most simply as the trustee’s ‘fiduciary duty’. The trustee is required by law to make decisions that are in the best interest of the beneficiary. This money is not for the benefit of the trustee but rather the beneficiary. For example, in the case of money being set aside in a trust for a minor, the trust will usually have a trustee that is designated to make decisions about how the money will be managed. The term is often used pertaining to the trustee of a trust. A fiduciary is someone who is required to act in the best interest of someone else. What is the Fiduciary Rule and why is it so important? First, let’s properly define: ‘fiduciary’. As of June 9th, 2017, the Department of Labor’s so-called Fiduciary Rule is here.
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