Everything You Ever Wanted to Know About Fiduciaries
June 05, 2020
By Heidi Huiskamp, Founder and CEO of Huiskamp Collins Investments, LLC
The world of finance can be baffling. Lawyers have to pass a bar exam to practice law. Accountants have to sit for the C.P.A. exam to receive their designation. It’s all pretty “cut-and-dried” and we, as a society, know those professions are properly vetted to practice their trades. Not so with those giving financial advice for a living. FINRA, the governmental regulatory body that oversees financial professionals, has a range of accreditations that span a wide range of knowledge and levels of care. In our society, people working for insurance agencies, insurance companies, and brokerage firms all can hang out a shingle and call themselves financial professionals. There are big differences, though, and being informed can help you make the very best decisions on those with whom you choose to work.
In 2016, Congress was looking to pass legislation around “The Fiduciary Rule” and suddenly the whole topic became a “hot button” issue. Though the legislation was not passed, the subject is still very important and there is a lot of confusion about what a fiduciary actually is and whether you need one as an investor. Simply put, a fiduciary is a financial professional who holds herself or himself up to clients with the very highest standards of care and always puts the needs of clients above their own. Studies conducted in 2019 by Personal Capital, a San Francisco-based wealth management research firm, found that nearly half of Americans believe ALL financial representatives are legally required to always act in their clients’ best interests. This is far from the truth.
In finance, there are two standards of care when working with clients: the fiduciary standard and the suitability standard. The fiduciary standard was covered above; if two options are available to a client, the fiduciary must always choose the one that will most benefit the client, even if it will prove less lucrative to the advisor themselves. The suitability standard has the financial professional look at the client’s circumstances like income, risk tolerance, time horizon, other investments, etc. and suggest an option that would serve the client, taking into account those facts. If there are two equally good options available to a client and one will reward the professional more, that financial representative is free to endorse the one that will enrich him or her to a greater degree as long as it is “suitable” to the client’s given circumstances.
So how does one know whether a financial representative is a fiduciary or not? Fiduciaries hold themselves out to practice this highest standard of care after receiving extra accreditations from FINRA which are earned by passing extra regulatory exams. Those professionals who are only going to sell mutual funds and insurance company products called annuities will take a Series 6 and 63 exam along with earning their Life and Health insurance licenses. Financial representatives who want to sell a full range of financial assets including those already mentioned in addition to individual stocks and bonds will sit for their Series 7 and 63 exams along with earning their insurance licenses. A fiduciary must also pass a Series 65 or 66 exam.
Do you really need a fiduciary? It depends. If you are an investor who enjoys doing their own research, choosing their own investments and don’t need financial planning services, you may not need a fiduciary. On the other hand, if that higher degree of care is important to you or you need advice or need expertise in financial planning, one of the first questions you should ask when interviewing a new financial representative is whether or not they are a fiduciary.
I have been a licensed financial advisor and fiduciary for nearly 20 years. That’s the only way I’ve ever done business. You have my pledge that I’ll always treat you like family and operate according to your very best interests. For a complimentary consultation, please contact me today at 563-949-4705 or email me at firstname.lastname@example.org.
Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRRA/SIPC. Advisory services offered through J.W. Cole Advisors, Inc. (JWCA). Huiskamp Collins Investments, LLC and JWC/JWCA are unaffiliated entities.
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