Is Your Financial Planner a Fiduciary? Independent Financial Advice
Posted by Don Martin on Mon, Jun 18, 2012 @ 04:12 PM
How do you know that a financial planner is a fiduciary?
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To be a fiduciary an advisor must provide custom tailored advice for the client that is not a mass produced generic one-size-fits all solution. The advisor must not claim that he is merely engaging in a transaction (such as a Broker) but is advising the client. The Broker-Dealer community has tried to claim that they have the right to give “advice” in an “incidental” manner that is not the same as a fiduciary. So a prospective client should ask the advisor "are you merely giving me “incidental” advice or is the advice somewhat substantial, deep, big picture, long term planning type of advice?" Ask the advisor “what does the advisor do to make the advice custom tailored to my unique situation?” Ask them if they are a Registered Investment Advisor which is a different license from a Broker-Dealer license. A Broker-Dealer could argue that he was merely giving petty incidental advice and merely had to meet a simple “suitability” standard instead of a more thorough fiduciary standard. When someone in the investment business gives more than incidental advice then they need to register as a Registered Investment Advisor (RIA) and to be an RIA one is automatically required to act as a fiduciary.
The tricky situation is when a Broker-Dealer is dually registered as both a RIA and a Broker. In theory they are required to be held to the higher standard of a fiduciary. However, they may try to claim that some of the time they can “change hats” every hour or every minute with each customer or client and act merely as a transactional Broker who is held to the lesser standard of “suitability” (regarding investment recommendations) and then the next minute claim that they are serving another client in the context of being a fiduciary. So ask the advisor “are you, at all times, with all clients, a fiduciary and an RIA or are you, some of the time, with some clients, a Broker with no fiduciary duty?”
When your nest egg is at stake be sure to use a fiduciary
If the Broker's literature claims that he is merely acting in an "incidental" capacity in giving advice and is primarily a Broker doing a transaction then he is not a fiduciary. I think it is impossible for a Broker who is not also dually licensed as an RIA to claim that he is a fiduciary advisor since providing such advice would require an RIA license.
I posted a web page “Fiduciary status” about this topic. I wrote an article about a case where a Broker was not a fiduciary “MF Global lesson avoid margin trading”.
Investors should seek independent financial advice. 