Is Your Advisor Your Fiduciary?

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The New York Times published an article this weekend outlining the difference between advisors who adhere to the fiduciary standard as opposed to the suitability standard. It is important information for all consumers of financial advice. Read the article here: http://bit.ly/RIAisFiduciary, and we discuss this issue below.

The difference between the duties investment advisors and brokers have to their clients is an important topic that we believe all clients should understand. Financial advisors must adhere to a fiduciary standard whereas brokers comply with a suitability standard.  These two standards seem similar at first blush but are actually separated by a wide gulf.  Duty to clients is the main distinction between financial advisors regulated as broker / dealers and those that are regulated as registered investment advisors.

KilterHowling is a Registered Investment Advisor (RIA), and is therefore held to the fiduciary standard. We must always put the interests of our clients before our own.  Essentially this means we find the best investment solution and the lowest cost, that all things equal, we must invest client money into the lowest fee product.

A broker / dealer’s suitability standard is effectively the opposite.  All things equal, a broker / dealer can invest client money in the most expensive fee product.  In short, an RIA regulated like KilterHowling is the only entity allowed to call themselves ‘investment advisors’.  Anyone else is selling you something.

So who is not organized as an RIA?  The list is long and includes every Wall Street firm you know.  It also includes smaller broker / dealers too.  Any firm whose disclaimer mentions ‘securities offered by’ such and such has the ability to work with you via a suitability standard.  There are advisors affiliated with a broker / dealer operating under a fiduciary standard, but these advisor teams are often subject to sales hurdles and other product incentives that skew the client relationship.  Buyer beware.

KilterHowling takes extra steps beyond our fiduciary standard.  We intentionally invest alongside our clients.  It’s part of our mantra of alignment of interests.  If your advisor is not eating their own cooking and invested in the same portfolios as you, then you have got to question the integrity of the process.  And because we are independently owned without sales targets or commission budgets, we are never incentivized to work with clients in a way that is not in their best interests.

The fiduciary standard is KilterHowling’s most important charge when we are trusted with our clients’ financial lives.  The client care it entails is really the only way to run an investment advisory firm, and we are glad to see the New York Times agree.