In the investment field, there are two primary types of primary parties who are able to offer investment advice to individuals, and institutional clients such as pension funds, non-profit organizations, and corporations. These parties are 1.) investment advisors and 2.) investment brokers who work for broker-dealers. Many clients may consider the investment advice they receive from an advisor and that which they receive from a broker as similar, but there is a key difference that may not be completely understood by the investing public. The difference pertains to the discrete standards to which each one must adhere, and the distinction has important implications for individuals who hire outside-financial assistance.
Investment brokers are only required to fulfill a suitability obligation, which details that the broker has to reasonably believe that any recommendations made are suitable for clients, in terms of the client’s financial needs and objectives. A key distinction in terms of loyalty is also important, in that a broker’s duty is first to the broker-dealer he or she works for, not necessarily the client served.
On the other hand, a Registered Investment Advisory (RIA) firm like Towerpoint Wealth is legally bound to a fiduciary standard that was established as part of the Investment Advisors Act of 1940. Regulated by the SEC or state securities regulators, RIAs are legally bound to a fiduciary standard, requiring them to put their client’s interests above their own. The act is specific in defining what a fiduciary means, and it stipulates that an advisor must place his or her interests below that of the client. It consists of a duty of loyalty and care, and simply means that the advisor must act in the best interest of his or her client.
Derived from the Latin word fiducia meaning “trust,” a fiduciary duty is the highest standard of care, highlighted by good faith, loyalty, trust and transparency. It means that the advisor must do his or her best to make sure investment advice is made using accurate and complete information, or basically, that the analysis is thorough and as accurate as possible. Avoiding material conflicts of interest is important when acting as a fiduciary, and it means that an advisor must disclose any material conflicts to placing the client’s interests ahead of the advisor’s.
Genuinely vested in our clients’ success, we at Towerpoint Wealth proudly assume a strict legal fiduciary duty to place your interests above all else.