Are All Fiduciary Financial Advisors Equal?

In the 80’s Smith Barney a very large financial investment firm used to run TV commercial advertisements that were targeted toward savers and small business owners. The commercials would have an older gentleman saying, “We earn money the old fashion way, we earrrn it!”. Its a very iconic commercial because it portrays to investors that the hired investment firm has “financial advisors” with strong work ethics. Fast forward to today and we have similar terminology with the use of the word “fiduciary” thrown around in the financial advising industry. Although financial advisors have a fiduciary duty to its clients, they are all different.

Blurring the lines of a fiduciary financial advisor is when a investment firm is related to a broker dealer. Broker dealers conduct business based on commissions. The reason this is important to know is because an advisors goal may not be aligned with the individuals financial goal but of generating commissions for the broker dealer. Full disclosures usually has to be made to the client so the client is aware of any potential conflicts of interest. We see this conflict of interest recently with TIAA CREF investment advisors with incentives and firm pressure to peddle proprietary products. They have incentives to peddle firm products with compensation, sales target goals, and will be terminated if not met. The compensation model of the employees is widespread throughout big Wall Street and banks.

Because of these compensation packages, fancy words to incite clients trust are used to give the appearance of a “fiduciary” financial advisor. Again, we see this with the TIAA CREF case page 7 when they used the words “fiduciaries”, “objective”, and “non-commissioned”. But, in reality the advisor is trying to hit their corporate sales goals without getting fired regardless of the clients investment goals. Now, does this sound like a fiduciary looking out for your best financial interest? Will your investment goals be met with the firm proprietary products or employee compensation models? This is a industry wide practice to keep an eye on because the firm may be paid differently based on proprietary products versus non-proprietary products. These issues can be easily eliminated when the broker dealer is an independent third party.

A often overlooked conflict of interest is the 12b-1 fees on funds. This is a fee on mutual funds that get paid out but sometimes are not disclosed to the client as seen recently with an investment advisor failing to disclose conflicts of interest for mutual fund share classes.

A fiduciary financial advisor today can blur many lines depending on how they are structured. At Treveri Capital, we are a non broker dealer with a 3rd party custodian for transparency, and aligning our goals with your financial goals. Our fiduciary duty is earned with your trust as a boutique investment firm catering to individuals investment goals.

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