Is Your Investment Advisor Motivated to Put You First?Submitted by Integras Partners on July 28th, 2017
Anyone interested in making intelligent investment decisions, seeks an advisor who will have their best interests at heart versus their own. There are several types of financial advisors, so it’s important to discern the differences to help you choose the right one. A major key to selecting the right financial advisor for you may be guided by their objectivity in recommendations for your money.
Registered Representative or Investment Advisor?
When investors are evaluating representatives, they may encounter anyone from an insurance agent to a brokerage employee to an independent investment advisor. They call themselves financial representatives, advisors, planners or agents. They sound very similar, but there can be a striking difference among them: how they are obligated to act in the client’s interests.
- The “Fiduciary Standard” by law, requires that an Investment Advisor place the client’s best interests first. This is governed by the Securities and Exchange Commission (or SEC) which regulates fee-based investment managers.
- The “Suitability Standard” requires that a mutual fund or stock broker simply provide recommendations based off of the client’s situation, not necessarily in the client’s best interests. Registered Representatives (also called brokers or reps) are held to a more relaxed set of regulations which are enforced by the Financial Industry Regulatory Authority (or FINRA). Annuity salesmen are also usually subject to the FINRA guidelines.
How Does the Difference Affect Me?
Here is an analogy to help highlight the vast difference between the fiduciary standard and the suitability standard. You are in the market for a new home. While you haven’t found a specific property, you do have a very good idea of the features and qualities you desire. So, you find a real estate office to view their listings. While talking to an agent, he realizes another firm has a listing that meets your needs exactly. Additionally, the agent is has a different home that he personally represents which mostly meets your requirements, but not fully. Yet, the realtor would receive double the commission if he closes his listing with you, even though it does not completely match your wishes.
If the realtor was operating by the suitability standard, he would attempt to sell you the home he represents. He would receive a bigger commission and you would receive a suitable home. Everyone is, to some extent, happy.
Conversely, if the realtor operates on the fiduciary standard, he would be required to present you with the home the other broker represents, as it is exactly what you’re searching for. Although his commission would not be as sizable, he would have serviced you in the best possible manner.
This is similar to how the investments and financial advice industry works. Fiduciary standards require advisors by law to conduct themselves in your best interests. Suitability standard brokers and representatives are not. They will still assist you and may be equally ethical. They may also be motivated by commissions or employer goals and incentives. At the end of the day, a suitability standard advisor may place their own interests first, while a fiduciary advisor is required to keep your best interests’ primary.
At Integras Partners, we created an independent advisory firm, specifically to ensure our ability to keep our client’s interests first. We seek to build long-term partnerships with our clients that are mutually beneficial over our relationship. With more than 80 years of combined industry experience, our team can help you create financial and emotional security. Call us today at (404) 941-2800 or send us a message here.