The Fiduciary Standard of Care

People who work with professionals to help them with their financial lives have probably been hearing a lot lately about the “fiduciary standard.” You may think that sounds good, but what exactly does it mean, and why should you care about it?

You should care because it is an important distinction that differentiates the myriad of professionals out there who offer financial advice. Registered Investment Advisors (RIAs) like Hewins Financial are governed by the SEC and the Investment Advisers Act of 1940. We are legally held to the fiduciary standard, which means we must act in the best interest of our clients and are held to the highest standard of care the law allows.

Brokers, on the other hand, are held to the less rigorous “suitability” standard, which allows them to make recommendations that may be suitable but not be in your best interest and does not require the same high standard of care. This can include recommending investment products that compensate the broker at a higher level (at higher cost to the client) than other options out there. Given the choice between two investments that are both suitable, the broker is free to offer up the one that will pay him the most. And he is not required to disclose what he is paid. Small wonder that brokers are resisting SEC efforts to bring their advisors under the umbrella of the fiduciary standard.

RIAs, like Hewins, typically charge an asset-based or hourly fee and are not compensated by commissions or transactions or incentivized to sell particular products, which is why they are referred to as “independent.” The lack of these conflicts allows these RIAs to put clients’ interests first and recommend the best investments from the broad opportunity set available. Hewins’ interests are aligned with our clients’, and our fees are fully disclosed.  We work with our clients to understand and support their personal and financial goals in a relationship of trust and respect so we can live up to our fiduciary responsibility.

So how can you use this information?  If you are currently working with a financial professional, find out which standard applies. RIAs are registered with the SEC, so you can easily ascertain (online at the SEC’s website) whether he has a fiduciary responsibility to act in your best interest. If he is a broker (who may be calling himself an “advisor”), be aware that the variable annuity or other investment he has recommended may not be chosen because it is in your best interest but rather because the fee structure is more beneficial to him and his firm.

If you are looking for an advisor, think about which type of standard makes most sense for you. Doesn’t seem like much of a choice. When you are working with an RIA, you can be sure your interests come first.

Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC); however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services, fees and conflicts of interest is set forth in Wipfli Financial’s current Form ADV Part 2A brochure and Form CRS, copies of which are available from Wipfli Financial upon request at no cost or at Wipfli Financial does not provide tax, accounting or legal services. The views expressed by the author are the author’s alone and do not necessarily represent the views of Wipfli Financial or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Wipfli Financial, and Wipfli Financial does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Wipfli Financial of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
OneBite Editorial Staff

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The Fiduciary Standard of Care

time to read: 2 min