When you’re feeling ill, who do you visit for medical advice? Your answer – like everyone else’s – would be to go see a doctor. It’s a no-brainer solution, because doctors are subject to rigorous scrutiny, and are legally bound to put your health first and foremost.
However, when it comes to the world of finance, most people don’t have a clear answer when it comes to improving their financial health. Unlike medicine, there are varying standards for financial advice, and not all of it has to be in your best interests.
Fiduciary advisors versus brokers
Unbeknownst to most, the majority of Wall Street – including advisors and brokers – doesn’t necessarily have to provide advice that’s in your best interests. That’s because they are held under the suitability standard, meaning they only have to provide “suitable” advice. These advisors are legally brokers, and can suggest investments based on the commissions they’ll receive and sales quotas they have to fill – even if they know of a better investment. That would be akin to getting medical advice from a drug sales rep who has to meet a sales quota for their product, instead of acting like a doctor.
Fiduciary advisors, on the other hand, are legally bound to act in their clients’ best interests at all times. Fiduciary status is optional, and a much more strenuous process than obtaining a broker’s licence. This is the highest standard for financial advice, and fiduciary advisors face recourse if they don’t fulfill that obligation.
How to tell if you’re using a fiduciary advisor
Not everyone can call themselves a doctor (at least, not without recourse), but in the financial world, people can give themselves almost any title. Although they are legally brokers, those held under the lower suitability standard can still can themselves “advisors.” Often, even if you ask them, they can still say they’re a fiduciary.
The only way to truly tell is to ask “do you have a series 7?” If someone holds a Series 7 license, they are a broker, not a fiduciary advisor. That means that they are compensated, in part, by making commission on the investment products they place in client portfolios. To become a fiduciary, an advisor must give up their Series 7 license (if they previously held one) and are held to an entirely different standard.
Learn more about using a fiduciary advisor
A trusted fiduciary advisor will sit on the same side of the table as you, and provide the best investment advice possible. At LexION Capital, we’re a fiduciary firm, and have been since day one. We’re solely focused on finding the highest quality and lowest cost investment solutions to meet your financial goals and needs. If you’d like to learn more, contact us today.
