Not a month goes by when I open an industry magazine such as Investment News or Financial Planning and find articles asking the same three questions: 1. What is a fiduciary? 2. Who is a fiduciary? and 3. Who claims to be one?
There is so much internal churn about how we, as investment professionals, call ourselves, present ourselves and where our interests align – brokers, advisors, financial planners and wealth manager. However, the public lacks understanding of these various terms. After all, do you know what all these "professional titles" mean?
Who Is an Advisor?
Those who registered with the SEC (U.S. Securities and Exchange Commission) under the Investments Advisers Act should call themselves Advisors. They also might use Financial Planner, Investment Professional or Wealth Manager.
Who Is a Broker?
A non-independent broker working for a wire house firm or a firm with multiple branches such as a national brokerage house. A wire house broker is typically a full-service broker who offers research, investment advice and order execution. By being affiliated with the wire house, the broker gains access to the firm's proprietary investment products, research and technology. (Investopedia)
I have never heard anyone in my professional circle call themselves “brokers.” Apparently, the coolness of that term went out with Oliver Stone’s 1987 film, Wall Street.
Though, technically, anyone working for a brokerage firm should be calling themselves brokers; they might be registered with the Investment Act as well, but their primary loyalty is to their broker-dealer not the client and they are non-independent. This is key in terms of fiduciary.
Who Is a Fiduciary?
An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another's benefit. (Legal Dictionary)
This type of trusting relationship is what I expect, I assume, when you walk into any professional's office whether it be a doctor, lawyer, accountant, even your hair stylist! You trust that they will put your interests first over theirs.
People ask me why I harp on this and this is why: When the wirehouses saw independent advisors use the term “fee-only,” they created “fee-based” to help muddy the distinction. The distinction is clear to us professionals, but not always to the individual investor. So, one walks into a professional’s office, hears “I am a fee-based advisor,” and assumes no commissions are involved in their compensation. Not so!
Strada's Fiduciary Oath
I’ve spent my entire professional life in this profession. First as a wire broker, then a fee-based advisor, and now a fee-only investment advisor. I have to tell you, I am going to keep writing about this, harping on it, standing on a soapbox, preaching it and ruining dinner parties (as my husband says) debating over this. It is not enough to read about it in our professional trade journals. The public needs to know. There are a lot of good advisors out there whether at wirehouses, insurance companies or independent broker-dealers. One can pay how and what they want for services as long as it is known and completely understood.
As a result, we at Strada Management have drafted our new fiduciary oath. Harold Evensky, a man I have followed for many years, published his fiduciary oath and we have adopted ours from his original. If you are ever in doubt as to how your advisor is compensated, use this form and have your advisor sign it on their letterhead. It is okay to pay for the advice, we all have to make a living – just know how you are paying for it and where your professional advisor’s interests align.
For further reading and education on this exhilerating topic, please read Investopedia's article "Paying Your Investment Advisor - Fees or Commissions?"