“A certificant shall at all times place the interest of the client ahead of his or her own. When the certificant provides financial planning or material elements of financial planning, the certificant owes to the client the duty of care of a fiduciary as defined by CFP Board.”
– CFP Standards of Professional Conduct (as of 9/2015), Rule of Conduct 1.4.
Not all financial advisors are held to the same standard. As a Registered Investment Advisor, we are required to act in a “fiduciary” capacity under the Advisers Act, which is enforced by the Securities & Exchange Commission (SEC). Other professional organizations of which we are members also require fiduciary behavior (see below). Major brokerage houses, on the other hand, are regulated by the Financial Industry Regulatory Authority, or FINRA, which holds brokers to a “suitability” standard.
Put simply, a fiduciary must do and recommend what is best for the client, period, while the suitability standard only requires that the advisor’s recommendation suits the customer’s investment portfolio, financial situation and needs. Held to only a suitability standard, a broker may recommend a stock mutual fund that pays them a higher commission rather than one that has performed better or has lower ongoing expenses but pays them less or no commission. They are also not required to disclose this conflict of interest to you. A fiduciary would not be allowed to make such a recommendation without disclosing the conflict of interest to you first.
As a fee-only advisor, our only compensation comes from you, our client. We receive no commissions or sales loads based on your investments. You can be confident in our objectivity and independence.
For our professional designations (e.g. CFP®), we have continuing education requirements that keep us up-to-date on the latest developments in legislation and academic studies relevant to financial planning and investment management.
Unlike many investment advisors, we offer quarterly performance reports that show you the rate of return you have earned over various time periods. This is more meaningful than a fund prospectus or brochure, because our software accounts for your additions to and withdrawals from the portfolio, as well as our management fee. Your performance report is unique to you.
Ask the advisors you are considering what standard of care they are held to, how they are compensated, what professional designations they hold, and how you will be able to measure their results.