Fiduciary Investment Advisers May Add More Than 6% In Value
From: www.forbes.com
Each year, Russell Investments does a nice job calculating the value of working with an investment advisor. They recently estimated the value added as more than 4%.
This is the additional percentage return that investors can expect to receive by working with an advisor compared with going it alone, and includes the following services:
- Construction of a financial plan;
- Basic investment advisory services;
- Tax-efficient investing consulting;
- Help avoiding behavioral portfolio management mistakes; and
- Annual rebalancing.
However, I believe that Russell Investments has left out a number of important elements that make working with a fiduciary adviser much more beneficial than working with a non-fiduciary advisor.
Yes, there is a difference between an investment adviser acting as a fiduciary for advice given and a non-fiduciary investment advisor. That difference is outlined below.
The difference between an advisor and adviser
I’m not trying to be cute. There really is a difference between investment advisers, spelled with an "er" at the end, and investment advisors, spelled with an "or."
Here it is.
Investment advisers are employed by Registered Investment Advisers (RIAs) (my firm is an RIA) and are required by the Investment Advisers Act of 1940 to act as fiduciaries for the advice they share with their clients. They are the only investment professionals legally allowed to call themselves investment advisers.
Investment advisors, typically employees of banks, brokerage firms and insurance companies, are considered salespeople by the Act. They are NOT required to act as fiduciaries for the advice they share, since that advice should be incidental to the sales process. As a result, most do not act as fiduciaries for the investment advice they provide.
These individuals are not legally able to refer to themselves as investment advisers. Instead, they have decided to refer to themselves using a slightly different spelling of the word substituting an "or" for an "er". Nearly everyone seeking investment advice is unaware of the difference.
Should you care whether your investment adviser is a fiduciary? Absolutely. It is the most important decision you will make when hiring an adviser. Here’s why.
Why it’s important that your adviser is a fiduciary
Investment advisers are required to put their clients’ interests first when providing advice. Investment advisors not acting as fiduciaries, typically working for banks, brokerage firms and insurance companies, are not.
Non-fiduciary investment advisors are salespeople selling their firm’s products and services and, as a result, tend to recommend investments that pay them more, whether or not they are the best options for their clients.
Investment advisers acting as fiduciaries must always put their clients’ interests ahead of their own. They are legally required to recommend the best options available for their clients, regardless of what they are paid.
As you might imagine, there is a significant difference between the quality of the investment advice that investors receive from fiduciary investment advisers and salespeople.
