Most people hire an adviser without asking the one question that decides everything afterwards: whose side of the table is this person on? The word for an adviser who is legally on yours is fiduciary. It is worth knowing exactly what that word obliges us to do, because it is the standard you should hold any adviser to, including us.
Two duties, not one
A registered investment adviser owes clients a duty of loyalty and a duty of care. Loyalty means we may not put our interests ahead of yours, and that any conflict between the two must be either eliminated or fully disclosed so that you can make an informed decision. Care means the advice must be suitable for you in light of your objectives, that we must seek the best execution we reasonably can for your trades, and that we must keep paying attention for as long as the relationship lasts.
That is a different standard from the one a broker or an insurance agent works under. A salesperson may be required to recommend something suitable; a fiduciary is required to recommend what is best for you, and to tell you when they are paid in a way that could colour the recommendation.
What that looks like in practice
- A written plan you approve. Our advice is recorded in an investment policy before anything is bought. If what we did and what we wrote ever diverge, the document is the evidence.
- Disclosed fees. Our Form ADV sets out what we charge and how. Ask for it; we are required to give it to you, and we would rather you read it than not.
- Your assets in your name. We never take custody. An independent custodian, Charles Schwab, holds the accounts, sends you statements directly, and will talk to you without us in the room.
- Conflicts named. If we have an interest in a recommendation, you will hear it from us first. We do not accept payments from product providers, and we do not earn more by putting you in one investment rather than another.
What it does not mean
Being a fiduciary does not mean we will always be right. Markets fall, theses fail, and a well-constructed portfolio still has bad years. The duty is to act in your interest with care and honesty, to say in advance what could go wrong, and to tell you plainly when it has. The measure of an adviser is not whether every call was right. It is whether you always knew what was being done with your money and why.
Questions to ask any adviser
- Are you a fiduciary to me at all times, in writing?
- How are you paid, and by whom?
- Who holds my assets, and can I contact them directly?
- May I see your Form ADV before we go further?
If the answers are not quick and plain, keep looking. If you would like ours, they are a thirty-minute conversation away.
This material is for informational purposes only and is not a recommendation to buy or sell any security. All investing involves risk, including loss of principal.