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Insights

An Explanation of the Fiduciary Standard

What does it mean to be a “fiduciary?” 
A fiduciary is someone who must always act in your best interest and must disclose any and all conflicts of interest.  Just like a doctor takes on the fiduciary role of providing care that is in his/her patient’s best interest, a financial advisor who is a fiduciary is held to the standard of providing advice that is best for you.

Are you a fiduciary? 
Yes.  Wealthstream Advisors adheres to the fiduciary standard.
What is the alternative to being a fiduciary?  Some financial advisors meet what is known as a “suitability standard.”   This simply means that their advice must be appropriate for the client at the moment that they make the recommendation but not necessarily in the client’s best interest.  They are not required to disclose conflicts of interest or fees.  As a fiduciary, we are held to a higher standard.  Our advice must also be suitable and we must disclose any conflicts and we must put your interests above our own for the duration that we serve as your advisor.

How do I know if my advisor is a fiduciary?
Ask them.  If they are regulated solely by the Securities and Exchange Commission (SEC) and they are an independent Registered Investment Advisory firm (such as Wealthstream Advisors), then they are a fiduciary.  If they are regulated by the Financial Industry Regulatory Authority (FINRA), then they are a broker who may not necessarily be subject to the fiduciary standard.  Adding to the confusion, some advisors will claim to wear two hats, meaning that they act in a dual role.  The dual advisor is regulated by both the SEC and FINRA.  In some aspects they may act as a fiduciary and at other times they act as a broker.

Shouldn’t all advisors be fiduciaries? 
We believe so.  Trust is a cornerstone to our business.  We are big proponents of transparency which means making it clear how we are paid and disclosing if there is a potential conflict of interest.  We would hope that those who are not fiduciaries would behave the same way but they may not be required to.

Why has there been so much recent attention to the fiduciary standard? 
The Department of Labor (DOL) recently ruled that all financial professionals are bound to the level of a fiduciary, legally and ethically, when working with retirement plans (e.g. IRAs, 401(k)s).  The rule is to take full effect on January 1, 2018.  This new rule will help reduce confusion when it comes to advice for retirement plans but the distinction will remain for non-retirement accounts when working with a non-fiduciary.

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