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How do I know if my advisor is a Fiduciary?

Jan 12, 2012 by Dustin from Manhattan, NY in  |  Flag
13 Answers  |  22 Followers
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14 votes

Some of these answers are not complete. For example, missing from the list is an RFC (Registered Financial Consultant) who has also taken an oath to serve in that capacity. But let's go one further. I would think your interest is not only one that is obligated to serve as a Fiduciary because of a designation or regulation, but one that actually does ACT like a Fiduciary (def: person bound to act for another's benefit, as a trustee in relation to his beneficiary), Just because someone is supposed to place your benefit before their own doesn't mean they actually do (a.k.a. Bernie Madoff). Don't be afraid to interview advisors and ask pointed questions about their fiduciary role, and what steps they take to ensure the clients interest comes first. Unfortunately, the regulators prohibit Registered Investment Advisors from using client testimonials, but that doesn't prevent them from articulating how they go about protecting your money, and what steps are taken to place your interests before your own. So my recommendation is not to rely on a label, but to interview, and to ask very pointed questions (such as: "What is your process used for selecting investment recommendations" and "What process is used to determine recommendation changes". Lastly, do not do business with anyone that does not use an IPS (Investment Policy Statement) for managed accounts, which is an investors written guidebook on how to manage those investments and how to test assets for consideration on inclusion or exclusion of portfolios. Best of luck with your advisor search.

3 Comments   |  Flag   |  Jan 17, 2012 from East Dundee, IL
Mike

Good points. Thanks.

2 likes | 
Flag |  Jan 17, 2012 near San Diego, CA
John Thomas Fitzgerald

Great answers, David.

3 likes | 
Flag |  Jan 25, 2012 near Boise, ID
Courtenay Shipley

Great answer. Also - if they're an investment advisory representative of a registered investment advisory firm, some of that information as well as other disclosures on conflicts of interest is available in the firm's Form ADV 2 disclosure. Brokers don't have this disclosure; only advisors do.

2 likes | 
Flag |  Mar 11, 2013 near Alexandria, VA

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9 votes

If your advisor puts you in any mutual fund with a symbol ending in the letters “ax” or “bx”...he might not be a fiduciary.

If your advisor blurts out something about annuities within your first two meetings...he might not be a fiduciary.

If your advisor is really excited to get you involved with his trade-intensive “covered-call strategy”...he might not be a fiduciary.

If your advisor wears loafers without socks and black suits with white pinstripes as thick as highway dividers...he might not be a fiduciary.

3 Comments   |  Flag   |  Mar 13, 2012 from Manhattan, NY
Jonathan N. Castle, MSFS, CFP®

Many no-load or advisor-share mutual funds end in "AX." TGBAX and JABAX are examples.

4 likes | 
Flag |  Mar 28, 2012 near Jacksonville, FL
Don

That's both funny and instructive. How about another one: If your advisor works for any firm that received a tax payer bailout...he might not be a fiduciary.

3 likes | 
Flag |  May 18, 2012 near Middlebury, VT
John Thomas Fitzgerald

Ha! My favorite... If your advisor tells you your retirement plan is "free" during a thank you get together at his weekend get-away home in St. John...he might not be a fiduciary.

4 likes | 
Flag |  May 21, 2012 near Boise, ID

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6 votes
Ryan Level 19

There are a number of ways to check out your advisor and if they are serving you as a fiduciary. First, ask them if they are a fiduciary. You can check out their credentials and their firm via a number of website searches. Try FINRA's website or the SEC website. If they are a NAPFA member they are a fiduciary. If they are fee only, odds are strong they too serve as a fiduciary. If you are paying commissions for products the odds are pretty strongly against being a fiduciary but not in all cases. Regardless of how you are compensating your advisor, the answer should clearly be yes or no. There are no maybe's when it comes be being a fiduciary.

Comment   |  Flag   |  Jan 16, 2012 from Gettysburg, PA

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5 votes

The best way to find out if your advisor is a fiduciary is ask them to sign NAPFA's Fiduciary Oath which can be found here: http://www.napfa.org/about/FiduciaryOath.asp And they don't have to be a member of NAPFA to be a fiduciary, but this is a good litmus test.

Also, be aware that some advisors are part-time fiduciaries. Those that are "dually registered" as both an Investment Advisor and a Registered Representative can be a fiduciary some times and a non-fiduciary at other times. Suggest you ask an advisor whether they're a fiduciary and if so, are they a fiduciary at all times in their relationships with clients.

3 Comments   |  Flag   |  Jan 19, 2012 from Atlanta, GA
Mel

Russ - Thanks for bringing up the point about dually-registered folks. In that case an advisor may be wearing a fiduciary "hat" in their advice to a client, but may also sell them products as a "non-fiduciary". How common is that in the marketplace? Do you foresee any regulatory change that would do away with dual registration?

4 likes | 
Flag |  Jan 19, 2012 near Cambridge, MA
Russell Garrett Thornton

Thanks for the question, Melissa. I'm not sure how common dually-registered advisors are compared to those that are 100% registered reps or 100% fiduciaries, but I suspect that dually-registered is probably the most common type of advisor. It's my understanding that most advisors at the larger Wall Street firms as well as advisors working for LPL or other independent broker-dealers are largely dual-registered. There is a lot of attention being given to the "fiduciary debate" in Washington, but any final regulations determining what is or what isn't a fiduciary and whether dually-registered advisors will continue to operate as they do now remains to be seen.

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Flag |  Jan 19, 2012 near Atlanta, GA
Mel

Thanks Russ!

1 like | 
Flag |  Jan 19, 2012 near Cambridge, MA

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5 votes

Beware of confusing titles and terminolgy. Anyone can use the title "Financial Advisor" or "Investment Advisor," or say they are "Fee Only" or "Fee Based" implying they are a fiduciary advisor. One quick and easy way to tell if they are tied to a broker is look at their business card. If you see the words "Securities offered through" followed by the name of a company, then they are a broker affiliated advisor and not a fiduciary. The larger Wall Street brokerage firms may not have to use these words on their business cards, but everyone knows who they are.

Comment   |  Flag   |  Feb 03, 2012 from San Diego, CA

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4 votes

In addition to whether an advisor says they are a fiduciary, be sure to check the following:

(1) How is your advsor registered - as a registered investment advisor representative, or as a registered representative of a broker dealer. If they are not registered at all, it's a red flag. If they are registered as a BD representative, you should probe for conflicts of interest. (2) How is your advisor compensated - incentives matter, regardless of what an individual says in a meeting or writes on paper. Discount any advice that does not come from a fee-only advisor who is acting in a fiduciary capacity. (3) What credential does your advisor hold - the CFA charter, the CFP designation, and the CPA/PFS designations all are reputable credentials in the financial advisory and investment management field. There are other credentials, but these are the most highly regarded. (4) What does the firm's code of ethics say about the role of advisors in providing advice? My firm incorporates the CFA Institute Code of Ethics and Standards of Professional Conduct by reference into our own ethics code. The CFA Code, the AICPA ethics standards, and the CFP Board standards are generally regarded as providing a blueprint for 'best practices' in the industry. A weak ethics code indicates a lack of focus or commitment to this important issue. (5) If you have doubts or questions about the nature of the relationship with your advisor, insist upon answers in writing.

1 Comment   |  Flag   |  Jan 27, 2012 from San Francisco, CA
Ryan

Well said - incentives definitely matter.

2 likes | 
Flag |  Jan 27, 2012 near San Diego, CA

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3 votes

Please allow me to ask a question of all of you answering this question. Come March 1, 2012 when Bill Gross of PIMCO Total Return rolls out their ETF as mirror of PIMCO Total Return which of these should a fiduciary purchase? Oh, and do not forget your client is tax sensitive and fee sensitive. What are all advisers who call themselves fiduciaries going to do? Half the costs, no forced tax due to sell offs. I believe this one issue will be a major change in the fee vs broker and all the talk that goes with which is better. This will be a game changer.

Comment   |  Flag   |  Feb 18, 2012 from Maitland, FL

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2 votes
Barry Rabinowitz Level 19

hi: A CFP, CFA, CPA and RIA are legally held to Fiduciary Standard. A stockbroker, insurance agent or a bank broker are not.

Comment   |  Flag   |  Jan 12, 2012 from Fort Lauderdale, FL

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2 votes

Ask them to put it in writing!

1 Comment   |  Flag   |  Jan 12, 2012 from Arvada, CO
Don

This is truly the best way. Having them sign the fiduciary oath as suggested above is one way to do it. No respectable advisor will feel put out by this request.

5 likes | 
Flag |  Mar 13, 2012 near Middlebury, VT

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2 votes

Ask if they are affiliated with a "broker- dealer". If yes they are a fiduciary to the broker dealer not the investor. Best of Luck!

2 Comments   |  Flag   |  Jan 27, 2012 from Port Washington, NY
Ryan

Evan, very well stated and to the point!

5 likes | 
Flag |  Jan 27, 2012 near Gettysburg, PA
Mike

"fiduciary to the broker dealer' - i like that

3 likes | 
Flag |  Jan 27, 2012 near San Diego, CA

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