Are All Investment Advisors Created Equal? You Be the Judge.
In the world of investments there are two types of investment advisor: a fiduciary advisor and a non-fiduciary advisor. Your choice as a partner can have a profound impact on your long-term financial success. In many instances, it is difficult to distinguish between the two.
Fiduciary Advisor
• A fiduciary is a person (or entity) who has the power and the obligation to act for another under circumstances which require total trust, good faith and honesty.
• Fiduciary advisors include bank trust companies, attorneys, and CPAs.
• Federal law requires fiduciaries to act in the best interest of their clients (putting the best interest of their clients above their own) and in good faith.
• Fiduciaries are duty-bound to avoid any activity in which there is a potential conflict between the fiduciary's interests and their clients.
Non-Fiduciary Advisor
• A non-fiduciary is a person who is held to a much lower standard than that of a fiduciary. A non-fiduciary provides investment advice that is merely “suitable” for their clients. This does not necessarily mean that it is the best advice for the client’s particular situation.
• Non-fiduciary advisors include insurance agents, stockbrokers, and broker-dealers.
• Non-fiduciary advisors often focus on what they can sell you. This frequently leads to investments in products that compensate the non-fiduciary advisor, creating an inherent conflict.
• Are all non-fiduciaries just looking out for themselves? Of course not.
The difference is they are not required to.
Fiduciary Standards
- Recommendation Requirements: Must be in client’s best interest
- Disclosure Requirements: Required to disclose conflicts of interest
- Loyalty Requirements: Must be loyal to the client and act in good faith
Suitability Standards
- Recommendation Requirements: Must be suitable for the client
- Disclosure Requirements: Less strict rules regarding disclosure of conflicts of interest
- Loyalty Requirements: May be loyal to the broker-dealer, not necessarily the client
Meet with an investment advisor
CNB Wealth Management Group has proudly served as fiduciary advisor on behalf of clients since 1922. CNB Wealth Management has a tenured team of trust and investment professionals ready to meet with you to serve your investment needs. Please contact us at our nearest location to discuss your individual situation. Click here to learn more about our investment services.
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