“The best security for the fidelity of men is to make interest coincide with duty.”
— Alexander Hamilton (Federalist Papers, No. 15)
It is common sense that your financial professional should always act in your best interest. As a “fee-only” Registered Investment Advisor, we have a fiduciary duty — a legal and ethical responsibility — to act in your best interest. Unfortunately, the vast majority of financial professionals are not held to a fiduciary standard. By refusing to accept compensation from anyone except our clients, Sunrise can place our independence and objectivity beyond question. As a “fee-only” Registered Investment Advisor, our only incentive is to ensure you succeed.
BROKER VS. FIDUCIARY (VIDEO)
FINANCIAL PROFESSIONAL COMPENSATION
There are three basic ways investment professionals can be compensated:
- Commission-based: The salesman’s compensation is determined by the kind of investment product that you are sold and number of times you buy and sell these products. Often, the incentive of the professional may not fully align with the client. (Not always a fiduciary)
- Fee-based: The salesman/advisor can be compensated by fees AND commissions (‘double dipping’). In this case, what you do not see (the loads, commissions, bond spreads, etc.) may be substantial. This may limit investment choices and increase the largest cost of investing – opportunity cost. (Not always a fiduciary)
- Fee-Only: The fee-only Registered Investment Advisor (RIA) is compensated only by the client. This is the most transparent, flexible, and client-friendly compensation arrangement. (Always a fiduciary)
Commission-based or fee-based salesmen have a bias towards proprietary products. Proprietary products are usually more expensive and, therefore, more profitable for the brokerage firm, bank, insurance company or trust department. Objectivity may be compromised when compensation is dependent upon the advice given or investments used. Conversely, independent advisors have the flexibility to search a wider market for the most appropriate, lowest-cost investment vehicle for their clients. Free from incentive-based conflicts of interest, a client is more likely to receive unbiased advice.
FLEXIBILITY & LIQUIDITY
Fee-only advisors attempt to use the lowest-cost, most-appropriate investments. This includes using no-load or no transaction-fee investments. Unfortunately, most commission-based investments have front-end or rear-end charges, or “lock-up” periods, that can make it costly to maneuver your assets. When economic conditions change and your portfolio needs to be re-allocated, it is advantageous to be able to do so at little or no cost.
The “fee-only” structure of our firm and the advisory nature of the interactions with our investors help to foster the development of stronger relationships and better communication. We have learned that this enables us to do a superior job for you.
“Many brokers do not have a fiduciary duty – a legal obligation – to put your interests above his or the firm’s………But an investment advisor’s fiduciary duty is on a higher plane, like that of a lawyer, a trustee, or executor of an estate” — Arthur Levitt, former Chairman of the Securities & Exchange Commission (SEC)
“….the broker is not your friend. He’s more like a doctor who charges a patient on how often they change medicines. And he gets paid far more for the stuff the house is promoting than the stuff that will make you better”. — Warren Buffett