Not all Financial Advice is Equal
You have enough on your plate without the burden of navigating your financial life alone. Offloading the pressure of your investments and retirement strategy onto someone with experience will free you up to focus on other important areas of your life.
Finding the most beneficial financial advice, however, is not always straightforward and you may need to choose between a fiduciary advisor or a broker. In this blog we will break down the differences.
Fiduciary advisors offer a range of services including comprehensive financial planning, investment management, retirement planning, tax and estate planning, and more.
Similarly, brokers can also provide advice and services for investing, retirement planning, portfolio management, estate planning, and taxes.
Both types of financial professionals can manage your money and help you plan for the future, but it’s important to understand the differences of fiduciaries vs. brokers – these distinctions can impact your wealth and long-term goals.
The Legal Requirements of Fiduciary Advisors
If you’re paying for financial management, you likely want your advisor to make choices that provide you with the most benefit. Using fiduciary advisors, you can rest assured that this is the case.
Fiduciary advisors are legally and ethically bound to act in their clients' best interests. They must disclose conflicts of interest and are typically paid with transparent, fee-only compensation. That means they do not earn commissions on specific investment products. Regardless of what investments fiduciaries purchase for you, they are both incentivized and legally bound to choose strategies that promote your success.
Choosing a fiduciary provides greater legal protection, ensuring the advice you receive puts your needs first and is always aligned with your unique goals. Financial management for fiduciaries is not sales-driven, which is particularly important when it comes to your complex and high-stakes financial choices.
The Suitability Standard for Brokers
With brokers, the lines between advice and commission are blurred. Brokers have different parameters from fiduciaries when it comes to giving financial advice and purchasing investments. Brokers are not bound by the same legal standards as fiduciaries. They must only recommend "suitable" products.
For example, brokers can legally sell you higher commissioned investment products that don’t meet fiduciary standards and will make them more money on commission. These products may also benefit the client, and therefore meet the suitability standard, but compared to other investment options there may not be the best there is.
So what counts as suitable?
Brokers must abide by the suitability standard which is less strict than the fiduciary standards. This standard requires brokers to recommend products that are suitable for the client but not necessarily the best option. Brokers are not always required to disclose conflicts of interest, and they can earn commissions on products they sell. This dynamic can create incentives for investment sales that are not aligned with the client's best interest.
Choosing to work with a broker may leave you with less protection than with the fiduciary standard. There is more room for legal conflict between the broker's financial gain and your needs as the client.
Choosing Between a Fiduciary and a Broker
Choosing a fiduciary over a broker can provide peace of mind, knowing that the advice you receive is based on your best interest, not on a potential profit for the advisor. Fiduciaries cannot be legally influenced by commissions when making choices about the stewardship of important portfolios like your retirement savings.
The transparency of a fiduciary model is especially helpful for the complex decisions you face like rolling over a 401K, planning for retirement, evaluating a Roth conversion, or investing an unexpected inheritance into a certain portfolio.
While brokers are not always acting in bad faith, the suitability standard leaves room for decision-making that falls short for the client. The fiduciary standard eliminates that gray area and ensures that reaching your full potential is the driving force behind an advisor's financial management strategy.
At Harvest, our fiduciary advisors don’t “sell” you financial advice. There are no commissions or kickbacks for buying particular financial products. Our pay comes solely from the overall assets that Harvest manages for its clients and our advice is simply what’s best for you. With that certainty in mind, you can be sure that the people shaping your financial journey are investing in you alone.
If you’re interested in growing, protecting, and enjoying your wealth, set up a consultation with one of our fiduciary advisors today. Contact us
