Fiduciary or Pretender

Vawter Financial |

You might see on our website that our advisors adhere to something called a "fiduciary standard.”  But the term can be confusing for people who aren’t in the investment advisory business. 


The fiduciary standard is a legal concept, but its core idea is not complicated.  To act as a fiduciary means we professionals have to put aside our own financial interests, and also put aside the business/financial interests of any company we may be affiliated with and give recommendations that are solely and completely in the best interests of people like you, our customers or clients. 


In other words, our recommendations have to be made with only one concern: is this the best thing I (the professional) can do for you, given what I know about who you are and what you want and need? 


So, what does it mean NOT to be a fiduciary?  Imagine that there were two kinds of health practitioners in the world.  One group functions much like doctors do today: they work out of independent medical offices, meet with you, diagnose your ailments, prescribe a medical solution that they believe is the very best course of treatment, and you pay them directly for this service. 


The other group of health care providers operates somewhat differently.  They wear white coats, which makes them look just like doctors.  Their office looks like a doctor’s office, but it is actually the branch office of a large drug company which requires its white-coated employees to give you an examination and then, no matter what’s actually wrong with you, they will prescribe those drugs which are most profitable to the company.   


These might not be the best treatments, but under a set of very complicated regulations, these less-than-ideal prescriptions are deemed to be legally-defensible ways to address certain medical problems.  These other health care providers are paid by the company according to how many of these treatments they can sell to you. 


Now imagine that these larger companies, because of the very high profits they're making on these treatments, are able to gain a lot of influence over the process that decides which treatments are "suitable."  In fact, their executives sit on the governing board of the organization that makes these determinations. 


To bring this analogy back to the financial planning/investment advisory universe, Vawter Financial functions under a standard that puts your interests ahead of our own or any other outside organization.  Our firm is registered with the Securities & Exchange Commission (SEC) as a registered investment advisor, which requires us to make this commitment to your best interests. 


But there are many brokerage offices whose representatives are not registered with the state or the SEC, and who, if you ask them, would never put in writing that they will commit to serving you under a fiduciary standard.  They might assure you, verbally, that they follow a ‘best interest’ standard, but that term is currently not well-defined and subject to a lot of interpretation. 


If you know any friends or relatives who are currently working with a broker—with people who, in essence, are posing as doctors in white coats when they are ‘prescribing’ investment solutions that are in their (and their firm’s) best interest—then please make them aware of this important distinction.  Ask if they’d rather be advised by someone who is fully committed to their financial well-being.  They might not care, but it doesn’t hurt to make them aware that they have this option. 

The opinions expressed in our blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this blog is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.