WHAT DOES IT MEAN TO BE A FIDUCIARY?
According to The Investment Adviser Association’s Standards of Practice, “As a fiduciary, an investment adviser has an affirmative duty of care, loyalty, honesty and good faith to act in the best interests of its clients.”
The Investment Adviser Association goes on to define what these fiduciary duties are as they relate to the advisory relationship. These generally include the duty to:
• At all times place the interests of clients first;
• Have a reasonable basis for its investment advice;
• Seek best execution for clients’ securities transactions where the adviser directs such transactions;
• Make investment decisions consistent with any mutually agreed upon client objectives, strategies, policies, guidelines and restrictions;
• Treat clients fairly;
• Make full and fair disclosure to clients of all material facts about the advisory relationship, particularly regarding conflicts of interest; and
• Respect the confidentiality of client information.
This is the foundation upon which advisers registered under the Advisers Act rely, and most RIAs believe these are the duties that should govern all fee-based advisers.
WHAT’S THE DIFFERENCE BETWEEN A BROKER AND AN RIA?
A broker is a registered representative that facilitates securities purchases and sale transactions for their clients, usually for a commission; primarily governed by The Securities and Exchange Act of 1934 and FINRA rules; required to ensure investment recommendations are suitable for the client, to provide best execution of client orders and to provide services in a just and equitable manner.
A registered investment adviser provides independent financial advice and typically receives a fee for that advice; governed by The Investment Advisers Act of 1940; legally obligated to act in the interests of their client (act as a fiduciary).
“When you are entering into an Advisory Relationship, it is one that is dependent upon trust – trust that your adviser will do what is right for you, not what is right for them or the firm they work for.”