A Fiduciary Advisor

When choosing a financial advisor, an investor is best served by working with a fiduciary. The word "fiduciary" originates from the Latin word fiduciarius, which means "holding in trust."  In the investment industry, a fiduciary is obligated to act solely in the best interest of the client.

Registered investment advisers (RIA's) are fiduciaries and are held to fiduciary standards by the U.S. Securities and Exchange Commission (SEC), so they are legally and ethically required to put the client's needs above their own at all times. An RIA is paid solely for advice, accepting no compensation for any investment products recommended to clients. An RIA that specializes in passive investments helps investors:

  • Invest according to their risk capacity
  • Properly allocate assets across a blend of globally diversified, passively managed index funds
  • Maintain a portfolio with appropriate risk exposure
  • Avoid the impulse to react to market volatility
  • Minimize investment costs and taxes

In contrast, broker-dealers and commission-based financial professionals are not fiduciaries. When providing investment advisory services, they are not held to the same legal standards as RIA's. Some brokers clarify their lack of fiduciary responsibilities in their contracts. Before hiring an investment advisor, it behooves an investor to ask questions and do some research on the fiduciary requirements of the financial advisors they are considering.

Step 12Invest and Relax