On its surface, it’s easy to support the fiduciary standard. A fiduciary has a legal responsibility to put your financial well-being ahead of their own. But regulators don’t—and frankly can’t—take a nuanced view of what constitutes a clients’ best interest.
At Quorum Private Wealth, we do put our clients’ needs first. We take that responsibility seriously. And sometimes, the best way to solve a client problem is to operate outside of the fiduciary standard.
To better explain why that is, let’s look briefly at how financial advisors are regulated.
Regulating trust: The fiduciary standard
Registered investment adviser (RIA) firms are legally required to put client needs ahead of their own. Representatives at RIAs must pass specific exam(s) to demonstrate their knowledge of financial and investment products, but also ethics and fiduciary responsibility.
Broker-dealers are registered differently. Representatives for broker-dealers are not held to a fiduciary standard when managing client investments. Instead, they follow a practice known as regulation best interest. Whatever product they recommend to you must be in your best interest at the time of the recommendation.
Representatives for both RIAs and broker-dealers must disclose, and work to minimize, any conflicts of interests that arise.
Some firms combine both approaches with a hybrid registration. For instance, Quorum Private Wealth offers both brokerage and investment management services through Sanctuary Wealth’s brokerage and RIA firms.
Why is that helpful?
Consider a client who receives a significant amount of company stock. We might recommend they sell shares, since a more diversified portfolio may be in their best interest. Executing that trade may cost less in a transaction-based brokerage account than in a managed (or fiduciary) account with an ongoing management fee. In other words, operating as a legal fiduciary may cost the client more. In our view, that’s not in the client’s best interest—the cheapest, easiest option is.
Beyond investing
The fiduciary standard exists outside the world of government regulation, too. Certified Financial Planners® (CFPs) are bound to a fiduciary standard by the CFP Board of Standards. The board insists CFPs act in their clients’ best interest on a wide variety of advice, beyond just investments. In fact, many financial planners who don’t handle client investments opt for this certification. While the process is rigorous, requiring a test and years of practical experience, the license isn’t legally binding. The CFP board has limited authority to enforce its standards beyond simply revoking an advisor’s certification.
It's also important to note that the fiduciary standard tends to be limited to investing (from a legal standpoint) and financial planning (by the CFP board).
Tax professionals and insurance brokers are not held to a fiduciary standard. Some obtain CFPs or other professional designations that signify their commitment to acting in their clients’ best interest, and many may choose to act as fiduciaries even if they aren’t required to do so.
Your best bet is generally to ask providers how they’re paid, what rules and standards they’re obligated to follow, and what standards they hold themselves to.
How Quorum puts you first
When we launched Quorum Wealth as an independent firm, our founding partners put significant thought into how to structure our firm in a way that truly put our clients’ interests first.
Many Quorum clients have complex finances; individuals with significant assets or intricate compensation packages may require custom-built solutions. So while we think of ourselves as fiduciaries and knew we wanted to work with an RIA, we also work with equity compensation plans that may benefit from simple trades; help clients find annuity pricing outside of a managed account; write structured notes; and evaluate and sell life insurance if and when it makes sense.
Our second hat as a broker-dealer representative, as well as our ability to sell insurance, means we can ensure you aren’t purchasing products with hidden fees or messy fine print from third parties. It also helps us take advantages of opportunities in the market.
For instance, in a rising rate environment, the yield on short-term cash equivalents like Treasury Bills is higher than average. We can purchase T-Bills for clients at auction at a lower rate when using our broker/dealer license.
Why it’s impossible to legislate trust
When it comes to financial services, there can be layers to the fees, commissions, and charges that may come into play.
Several financial products, including mutual funds and ETFs, are packaged and marketed just like anything else. The firms who design these products offer financial professionals commissions to sell them to clients. The fees that fund those commissions are often bundled into the products themselves and can eat away at potential returns.
Broker-dealers often charge fees and commissions on trades; these fees may vary depending on who is executing the trade (i.e., a retail investor, a representative of the firm, a fund manager, and so on). Custodians—the financial institutions that hold client assets—can charge fees on assets and transactions.
The complexity of this system means finding the best deal for clients is rarely as simple as “operate as an RIA under the fiduciary standard.” And we want to be able to find the best deal for our clients; that’s what putting our clients’ interests first means to us.
At the end of the day, regulators are trying to protect investors from bad actors. They have good reason to do so; as we’ve seen time and again, there are plenty of bad actors who prey on hardworking Americans. But it’s impossible to truly regulate trust.
Consider what we’re seeing in 2023: So-called influencers on social media shill terrible advice, from ditching your 401(k) to promising outsized returns based on flawed calculations. This advice is undoubtedly harmful, but since the influencers behind the posts aren’t registered with any government entity, regulators have no authority to stop the spread of misinformation.
For us, this is further proof that trust doesn’t come from regulators. It comes from lasting relationships and a track record of putting you first. We know our clients don’t just trust us with their investments. You trust us to help you reach your goals and fund your dreams. You trust us to treat you like we would treat our own family. That’s the standard we hold ourselves to.
For questions, feel free to reach out to our team. We also believe in transparency at Quorum; the details surrounding our firm structure, from services to fees, can be found here. You can also search for Quorum, or any other investment adviser registered with regulators, using the Financial Industry Regulatory Authority (FINRA)’s free BrokerCheck.
