Many people have heard the word "fiduciary" but don't know what it means or how it can affect them personally. In the context of financial planning, a fiduciary is an advisor who puts their clients interests ahead of their personal interests. It is a legal or ethical relationship of confidence or trust regarding the management of money and the advisor must not profit from his fiduciary position unless authorized by the client. A fiduciary is expected to be extremely loyal to the client and must make clients aware of any and all conflicts of interest.
Peterson Wealth Advisory is a Registered Investment Advisor (RIA). All RIAs have a fiduciary duty their clients. RIAs are regulated by the Securities and Exchange Commision (SEC) or by the states in which the advisor is located. Brokers, Registered Reps, Stockbrokers, etc. are self-regulated by the Financial Industry Regulatory Authority (FINRA).
Brokers have been blurring the lines between themselves and RIAs for a number of years. One way has been through fee based accounts. RIAs are compensated strictly on a Fee-Only basis. The client pays the advisor directly for hours of service or a flat percentage of the assets under management. Broker fee-based accounts charge a percentage fee of the assets managed and the advisor can receive monies from the products they sell. They can get 2% kick backs on structured notes and revenue sharing from mutual fund and insurance companies.
In fact, as of July 22, 2005, any brokerage firm that offers fee-based accounts must prominently disclose the following, among other things:
• “Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours.
• We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits and our salespersons’ compensation may vary by product and over time.”
Be aware of the differences between a RIA and a broker. The RIA is loyal, works on your behalf and their compensation is clear and understandable. On the other hand a broker can sell products first and worry about their suitability for you second.
