fbpx

The Good ‘F’ Word: Fiduciary

By Julie Neitzel

Many investors are not aware that the financial services industry operates under two main standards of care: suitability and fiduciary.

Depending on which of these two operating standards applies, an advisor may be allowed to recommend investments with poor performance records, or those that pay the advisor and his firm high commissions and fees; these recommendations primarily benefit advisors, their firms and the money managers – not the investor. Adding to the confusion, the title of “advisor” is broadly used in the financial industry. It’s difficult to tell if a representative is a broker or a financial product company agent governed by the more permissive suitability standard, or an advisor operating under a fiduciary standard.

Identifying whether a fiduciary or a suitability standard applies can be difficult since large financial organizations operate broker-dealer, trading, investment banking, fee-only and a range of other businesses to which one or both standards may apply.  (Fee-only means they are not compensated via commissions.)

This issue has been highlighted recently in the extensive press coverage about the new Department of Labor rule requiring financial advisors who deal with retirement accounts to act in their clients’ best interests under a fiduciary standard. The financial services industry spent millions of dollars lobbying against this standard, primarily because it will decrease revenues for lines of business that are not currently subject to it (the majority of financial industry business).

Acting in a fiduciary capacity is more expensive for financial service companies. In the past few years, a number of marquee names have resolved allegations of breaching their fiduciary duties by paying settlements totaling in the billions and disclosing certain conflicts of interest with their clients – including recommending their clients buy their proprietary higher fee mutual and hedge funds. 

How do these different operating standards affect clients? Stockbrokers or agents who work for companies that distribute financial products typically are held to a lower standard known as “suitability.” In layman’s terms, a financial product may be sold to investors as long as it’s generally suitable for a certain class of investors based on a clients’ financial status, tax status and investment objectives – even if there are lower cost and significantly better-performing comparable investments. As a general matter, the suitability standard allows brokers or advisors to recommend products to clients that are in the best interests of their firms, rather than in the best interests of their clients.

By comparison, fiduciary advisors are required to put clients’ best interests first, including instances regarding investment costs. Typically, a fiduciary advisor’s sole source of compensation is a fee paid by the client for investment advice. These are known as “fee-only” advisors. Note, however, this too can be confused, since some brokers may charge a fee as well as accept commissions and categorize themselves as “fee-based.” 

Most clients hope their investment professionals have their best interests at heart, regardless of the firm’s operating model. Nonetheless, it’s important to ask the right questions to determine where your advisor’s duty of loyalty lies: with you or with his firm.

These questions may include: Do you have a legal obligation to act in my best interests? Do you (or your firm) receive any compensation for my account other than the fees I pay you?

Additionally, public resources like FINRA’s online BrokerCheck system are available to check advisor and broker backgrounds to determine if there has been any misconduct reported. Not every advisor truly has the clients’ best interest at heart, but if you work with an advisor who operates under a fiduciary standard, you should get investment advice and not product sales, and your interests are required to be put first.

Julie Neitzel is a partner and advisor with WE Family Offices in Miami and a board member of the Miami Finance Forum. Contact her at julie.neitzel@wefamilyoffices.com or 305.825.2225.

You May Also Like

Pride Week Festival Begins With Tribute to Pulse Nightclub Survivor

Miami Beach Pride’s week-long festivities will commence with a special tribute to the LGBTQ+ community honoring the victims of the tragic shooting at Pulse Nightclub in Orlando. A ceremonial “flip

Surfside luxury condo sees notable sales

Arte at Surfside is making waves. There’s, of course, the news that Ivanka Trump and Jared Kushner are renting at the 16-resident luxury condominium. And there’s the December penthouse sale

Up in the Air: A Discussion

In a dynamic region where residents are typically on the move, everyone is wondering about the health of the airline industry and the safety of airports and airplanes. Everyone is

South Florida Yachting Legend Passes

Robert “Bob” Roscioli, an icon in the South Florida marine industry, has passed away. Many recognize the name Roscioli from the widely-successful and world-renowned Roscioli Yachting Center, a full service

Other Posts

Four key steps

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] What a crazy time we are all experiencing. Right now, getting back to basics is most important. It is not and

Pandemic adds to worries about hurricane season

An above-normal 2020 Atlantic hurricane season is expected, according to forecasters with NOAA’s Climate Prediction Center, a division of the National Weather Service. The outlook predicts a 60% chance of

The difference between leading and managing

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] Leadership and management are often misunderstood as one in the same. They are not. Certainly, a good leader should be able

Flattening the housing curve in a pandemic

By Josh Migdal In the classic film Groundhog Day (and yes, it is a classic), Bill Murray’s character wakes up over and over again in Punxsutawney, Pennsylvania, reliving the same

Drew Limsky

Drew Limsky

Editor-in-Chief

BIOGRAPHY

Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.