Many retirees and investors have heard the term “fiduciary,” but don’t understand what it means. Here’s why it matters for you and for your savings.
According to the law, a fiduciary is a person who has the power and the obligation to act for another under circumstances which require trust, good faith, and honesty. Fiduciaries include people such as trustees, attorneys, guardians, the administrators of estates, and registered investment advisers like Guild Investment Management. Usually the fiduciary is in a position of authority and knowledge, which is why the law is so careful to make sure they are held to the highest standards of integrity. Investment advisers who are required to adhere to a fiduciary standard, for example, are obligated to put a client’s interests ahead of their own interests. They must also provide important disclosures to the client before doing business, such as informing clients about the adviser’s qualifications, how they will be compensated, their record of any disciplinary actions, and possible conflicts of interest. If there is a conflict of interest, a fiduciary must either eliminate that conflict, or thoroughly disclose the facts about that conflict.
You’d think that all wealth managers would be held to a fiduciary standard, but they’re not. Typically, “wealth managers,” “wealth advisors,” “investment consultants,” “financial advisors,” and “financial consultants” are not required to adhere to a fiduciary standard.
When you’re dealing with an advisor or financial manager or consultant who is not held to a fiduciary standard, many potential conflicts of interest can arise. Regardless of what they call themselves, such non-fiduciaries are able to avoid the higher legal duties that accompany being a fiduciary because their advice is thought to be merely incidental to the sale of their products, and they receive no special compensation for their advice (typically, they work for commissions or other compensation that they may not be required to disclose fully to their clients). Some are governed by the “suitability doctrine,” which means that as long as an investment is merely “suitable” for a client, they can recommend it. But that is a lower standard of legal care than the high standard to which fiduciaries are held. For example, even if a non-fiduciary manager knows that there is a superior product available, the manager can put their client in a different one that brings them a bigger commission. This is only the tip of the iceberg in terms of the potential conflicts that could be present when a non-fiduciary is working for you and the standards of conduct are more relaxed than for a fiduciary.
So one of the most important things you can do is to make sure that your advisor acts as a fiduciary, and is required to act with the level of integrity that you’d expect from any professional serving you in such an important way. If your prospective manager is a “Registered Investment Advisor,” or RIA, you can be sure that they are fiduciaries, because any firm with that designation is legally required to adhere to the fiduciary standard.
Guild Investment Management is a Registered Investment Advisor and has served its clients as a fiduciary since 1971. We are proud to be a fee-only advisor, with transparent, fully-disclosed, and easy-to-understand fees — never any commissions from you or the companies whose securities you are purchasing, and never any hidden expenses. You can be confident that we are making investment decisions in your best interest — never just our own.