The investment advisor field consists of a variety of professionals. Some strictly analyze and manage portfolios, while others are involved in more aspects of the client’s financial life such as real estate, retirement, and tax planning. Some of these professionals are “fee-only” (or fee-based), where they charge a flat rate for their advisory services. Others are commission-based, where they collect commissions on financial transactions or products. However, some financial institutions are known to not only have an advisory fee but also collect commissions on certain financial products or funds they offer to their clients.
In 2016, the Department of Labor’s (DOL) Fiduciary Rule mandated that all professionals managing or advising retirement accounts, such as IRA’s and 401(k)s, must comply with a fiduciary standard. This conduct involved being honest about compensation and recommendations, charging reasonable rates, and always putting the clients’ best interests first. The intention for this rule was to ensure advisors were never running contrary to their client’s risk tolerance or objectives and would be held criminally liable if they violated this rule. Fee-based Registered Investment Advisors were already required to be fiduciaries. Commission-based advisors such as brokers were not. To complicate things further, some commission-based advisors can also be fiduciaries as long as they follow the suitability rule for their clients. This means they can sell any products they believe suit their clients’ situation and objective, but the measure of suitability is quite subjective.
The DOL’s Fiduciary Rule was never fully implemented and then rescinded in 2018. However, this still begs the question about an advisor’s conflict of interest if they collect commissions on certain financial products. At Fogel Capital Management, Inc., we are Fiduciaries. We do not collect commissions and are not incentivized to buy or sell any certain security over the other. Our goal as Fiduciaries is to create a portfolio that meets the individual client’s objectives and needs. As an investor, it is important to do your research and find an advisor that is transparent about their fee structure and that is geared toward your goals and risk tolerance. To discover lost returns because of hidden fees, call us at 772-223-9686 to schedule a free portfolio consultation.