“Financial Advisor” is a bit of a nebulous signifier these days.
If someone tells me they are a financial advisor that could mean they do financial planning, investment management, securities trading, insurance sales, financial coaching, tax management, wealth transfer, 401(k) administration, and/or a variety of other tangential tasks in the world of personal finance. In addition to this, and more pertinent to this post, someone claiming they are a financial advisor can have disparate ways in which they are regulated and compensated.
Generally, financial advisors fall into one of three camps:
Investment Adviser Representatives – Employees of a Registered Investment Adviser, regulated by individual states or the SEC. These advisors must always act as fiduciaries in the best interests of their clients. This is what Mintco Financial our advisors are.
Registered Representatives – Employees of a Broker-Dealer regulated by FINRA. These advisors are held to a suitability standard when making recommendations to clients (more on this later).
Dual Registered – Employees of Hybrid firms that can ‘switch hats’ to be an Investment Adviser Representative or a Registered Representative as wanted/needed.
Only individuals that act as #1, 100% of the time, are true fiduciaries that must act in the best interest of their client at all times.
As mentioned above, only Investment Adviser Representatives are required to act as fiduciaries at all times with their clients. This means these advisors must act in their client’s best interest and always place the interests of the client above any personal interest.
Most notably, fiduciary advisors are fee-only and receive compensation solely from their clients. This means they do not receive commissions from investments, products, or services they may recommend in the course of their advice. Furthermore, a fiduciary advisor must clearly disclose conflicts of interest when and if they arise.
How Can I Tell if Someone is a Fiduciary Advisor?
A good starting point for determining whether someone is a fiduciary advisor is by looking them up through the SEC’s adviser search tool. If their firm (and by extension they themselves) acts as a Registered Investment Adviser, they will have what is called a Form ADV Part 2A filing available to be viewed online. This document is a plain-English brochure of the firm’s services and compensation methods.
However, as I mentioned above, some financial advisors are dual registered. This means they can act as a broker some of the time and an investment adviser at other times. This creates a transparency issue when trying to determine whether an advisor will truly have your best interests in mind. These advisors will typically have a Form ADV Part 2A on file with the SEC or state regulators, but there will be disclosure concerning their dual registration.
Another way to tell if your advisor is a fiduciary is by reading the disclosures on their website. For instance, Mintco Financial the following disclosure:
Investment advisory services offered through Mintco Financial, a registered investment adviser. This site is published for residents of the United States only. Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered.
Mintco Financial operates independently from the big financial firms and insurance companies, which lets us provide you with unbiased, client-driven advice.