Although both provide investment advice for their clients, an independent fiduciary advisor operates under different standards than does an investment broker. A fiduciary advisor is bound by federal and state law to a duty of loyalty and care that places the interests of the client ahead of those of the advisor. An investment broker must follow what is known as a suitability obligation, which means the investment advice must be suited to the best interests of the client but does permit the broker to earn commissions or otherwise benefit from the recommended investment advice. Here are 5 characteristics you can expect of an independent financial advisor:

Acts in utmost good faith and with undivided loyalty

This is the foundational duty of any fiduciary, but it has specific meaning when it comes to advice on financial matters. When an investment broker advises a client, they typically do so as an employee of a brokerage house. Of course, they owe loyalty and have a duty to their employer, which clearly means their loyalty to the client is not undivided.  

Provides full disclosure of all material facts

A material fact is one that a reasonable person would want to know before they made their decision. Implicit in this is the concept that but for the suppression of a fact, a different decision would reasonably be made.

Avoids conflicts of interest

It is important to disclose potential conflicts of interest, as well. This may involve, for example, a financial advisor receiving compensation for the sale of a certain financial product or, perhaps, receiving incentives for each transaction.

Thinks independently and acts strategically

Investment brokers tend to implement investment strategies with the lowest common denominator of various clients in mind. An independent fiduciary advisor can be more nimble and can devise investment options tailored to the specific client’s needs.

Puts agreements and disclosures in writing

Full and complete transparency dictates nothing less. Nothing should be hidden from clients or government regulators.

Not every investor needs an independent fiduciary advisor. If you like to do the research and mostly handle your own investments, you don’t need a fiduciary to make trades for you. But if seeking the advice of professionals for your investments and retirement planning, why not work with someone who is held to a higher standard of care regarding their clients’ investments?

Spinnaker Investment Group has developed a simple, interactive tool for you to use as a measure of how happy you are with your present investment situation. Get started here: spinninvest.com/spinncycle. 

Disclosure

The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice.