In the decade following the financial crisis, regulators moved to protect the interests of regular folks working with professional advisors. In the meantime, critics urged everyday Americans to ask one all-important question before accepting financial advice: Is the person advising you a fiduciary? 

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Here’s why:

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A fiduciary has a legal responsibility to put your financial well-being ahead of their own.

It sounds like common sense but not every financial advisor is held to a fiduciary standard. Registered investment advisers (RIA) are, and GatePass Capital is an RIA.

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What’s an RIA?

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RIA’s are registered with the United States Securities and Exchange Commission (SEC) and are legally required to put client interests ahead of their own. While the RIA designation technically refers to a firm, it is often used loosely to refer to individuals as well. For an advisor to register with a firm, they often must pass specific exams that demonstrate their knowledge of financial and investment products as well as ethics and fiduciary responsibilities.

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Certified Financial Planners® (CFPs) are bound to a fiduciary standard by the CFP Board of Standards. As the CFP Board puts it, “At all times when providing financial advice to a client, a CFP professional must act as a fiduciary.” While this is different than a legal requirement, the CFP Board requires advisors to pass tests around products and ethics to qualify for the designation. Advisors who handle financial plans but not investments may seek this classification.

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Broker-dealers—and representatives acting on behalf of a brokerage—are not fiduciaries. Instead, they’re held to a standard known as suitability or Regulation Best Interest. Whatever product they recommend to you must be in your best interest at the time of the recommendation, but conflicts of interest are allowed, so long as they are disclosed.

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If that sounds a bit murky, it can be. Consider a situation where product A and product B both address your needs; A is slightly better for your circumstances, but B offers the broker-dealer a commission. That broker-dealer representative can sell you B without mentioning A exists, so long as the broker-dealer discloses the potential conflict and “has a reasonable basis to believe” that product B is in your best interest. Sometimes, disclosure of these conflicts may be buried in the fine print.

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Some financial advisory firms are dually registered, meaning their personnel can operate as both (either) an RIA (investment adviser representative) or a broker/dealer representative. That can mean they can take their fiduciary hat off when it suits them.

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Tax professionals and insurance brokers are not held to a fiduciary standard. Some professionals may hold themselves to that standard (particularly on the tax side with an attorney or CPA). When it comes to insurance agents, however, it’s fair to apply some skepticism. There are large commissions at play, so it’s important to be aware of the seller’s responsibility to you. One way to get more clarification when working with financial professionals? Ask how they get paid.

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Is your advisor a fiduciary?

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To find out if your current wealth advisor is a fiduciary, the simplest option is to ask. But as you can see, it’s easy for advisors to say yes, even if they’re only a fiduciary part of the time, or when it’s not a legally binding designation.

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You can also look up how your advisor is registered using the Financial Industry Regulatory Authority (FINRA)’s BrokerCheck database.

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Finally, you can ask how your advisor gets paid. Representatives of a broker-dealer tend to get paid on commission when making trades. (Sometimes this is in addition to other investment fees.)

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You can be confident that a GatePass advisor is never recommending a product because they get a commission or some form of compensation. It’s the best way to ensure that your advisor is 100% in your corner. Every advisor is legally required to file a piece of paperwork known as a Form ADV each year outlining their fee structure and other key details about how they operate.

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At GatePass, we aim to remove some of this confusing guesswork. We are fiduciary advisors in the truest sense. Our payments come from you and our obligation is to you, and you alone.

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“There’s no such thing as free advice”

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You’ve heard the saying, and when it comes to financial services, it’s true. If you think your advisor works for free, it’s likely they’re receiving commissions behind the scenes.

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Several financial products, including annuities and mutual funds, are packaged and marketed just like anything else. The firms that design these products often pay commissions to the financial professionals that sell the products to clients.

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Advisors commonly promote this as a good deal for clients: Because the advisor makes money from these products, clients pay less. Some even bill it as free advice!

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But as we explained earlier, professionals selling these products are rarely obligated to put your interests—including the financial goals you have for your family—before their own. These products might have lower returns than competing products, higher fees that eat away at returns, or they might not match your goals or risk tolerance.

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A fiduciary, on the other hand, is legally obligated to recommend the best product for you, even if another product offers a commission.

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One of the main reasons we founded GatePass Capital was because we wanted to put your interests first; we wanted to be fiduciaries. While some advisors might hide how they’re registered or structured, we’re proud to say we operate as fiduciaries, and we can help you evaluate products from other providers who do charge commissions.

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Unless otherwise indicated, commentary on this site reflects the personal opinions, viewpoints and analyses of the author and should not be regarded as a description of services provided by GatePass Capital or its affiliates. The opinions expressed here are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual on any security or advisory service. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice. While all information presented, including from independent sources, is believed to be accurate, we make no representation or warranty as to accuracy or completeness. We reserve the right to change any part of these materials without notice and assume no obligation to provide updates. Nothing on this site constitutes investment advice, performance data or a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Investing involves the risk of loss of some or all of an investment. Past performance is no guarantee of future results.

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