The language of money is ripe with terms that are foreign to many investors. As an investment advisor, I spend my days literally swimming in financial jargon. Words like derivatives, wrappers, EBITDA, yields, and value-oriented stocks often do more to confuse investors than to inform them. Luckily, understanding most of the jargon doesn’t really matter as long as your professional advisor is the one tasked with the job of building and implementing a smart strategy aimed at meeting your specific goals.
However, there is one word in the ‘secret’ language of investing that can have a major impact on the success of your investment strategy. This word is ‘fiduciary,’ and it’s a term every investor should know and understand—especially when asking, “Is my advisor truly acting in my best interest?”
What is a fiduciary, exactly?
In short, a ‘fiduciary’ is anyone who is legally bound to act in your best interest. In the investment world, a fiduciary financial advisor:
Any “advisor” who is not a fiduciary is not bound by these important limitations. It sounds simple, but confusion around the term is rampant, and non-fiduciary advisors have done an excellent job of continuing to muddy the waters. Clarifying the difference and why it matters is a battle I’ve fought my entire career, and one that continues to be a struggle.
According to a recent study conducted by the Rand Corp. and the SEC’s Office of the Investor Advocate, marketing trends in financial services have successfully “blurred the boundaries” between non-fiduciary financial brokers and investment advisors who are held to strict fiduciary standards. The study revealed that more than 40% of investors incorrectly think that both brokers and advisors are required to act in clients’ best interests. That simply isn’t the case. Sadly, it is a misconception that has led many investors to place their trust—and their assets—in the hands of non-fiduciary financial services providers.
As I wrote in my blog post In the beginning, when Gideon, Ray, and I opened the doors to Leisure Capital Management nearly two decades years ago, our mission was to grow and protect our clients’ assets by working in their best interest. Back then, most of the advisors I knew were focused on stock picking and chasing returns rather than growing and protecting their clients’ assets. When stocks were up, the strategy seemed fine. When stocks were down, either due to a financial crisis or a fundamental shift in the market cycle, the clients were the ones who suffered. Over the years, not much has changed. Investors seem more willing than ever to hear what they want to believe, even from advisors who do not adhere to the fiduciary standard and who continue to recommend products that add to their own bottom lines rather than to the long-term strength of their clients’ portfolios. For the sake of our clients and our own sense of integrity, we have remained committed to the fiduciary standard since day one. As a fee-only advisor, we receive no commissions or other compensation for recommending products. Our compensation comes exclusively from our management fees based on the assets we manage for each client. We believe this is the best—and the only—way to serve our clients.
I’m happy to report that the Securities and Exchange Commission (SEC) has taken new steps in the battle to protect investors from non-fiduciary investment practices. Beginning June 30, 2020, the SEC requires non-fiduciary brokers and brokerage firms to stop using the term “advisor” in their professional titles and their marketing materials. The new rule, known as Regulation Best Interest, was created to help investors gain clarity when choosing who they want to manage their assets. The goal of the new rule is to “enable a retail customer to more easily identify and understand their relationship.”
At Leisure Capital Management, we believe our trusted relationships with our clients lie at the heart of our business. What the SEC has defined as our ‘fiduciary duty’ includes a code of honor that we believe should be the basis of every client/advisor relationship. According to the SEC, fiduciary advisors must:
We couldn’t agree more. Our mission at Leisure Capital Management wasn’t created to meet the requirements of the SEC. Rather, it grew out of our own desire to do the right thing, every time, to help you maintain financial strength and stability. We are committed to the fiduciary standard—and to you. Which is why your answer to the question, “Is my advisor truly acting in my best interest?” is simple. It will always be “Yes!”
 “The Retail Market for Investment Advice”, Brian Scholl, Ph.D., Office of the Investor Advocate Angela A. Hung, Ph.D., RAND Corporation