According to a recent Investor Education Fund (IEF) study, roughly one-third (33%) of Canadian investors choose a wealth manager based on a referral from a family member or friend. Another 38% of Canadians say they rely on their financial institution to assign them an advisor.

Whether you acquire an advisor through your financial institution or through a referral, how much do you actually know about them? According to the IEF study, not enough.

Nearly two-thirds of those surveyed said, “they knew very little about their advisor when they first entered into the relationship.” That can be dangerous. If you have hired someone to look after your investments, you need to know that person is going to act in your best interests. In other words, you need to know if your advisor is going to act as a fiduciary.

Fiduciary Duty: What it is and what it means for your portfolio

What is a fiduciary?

A fiduciary is a person who holds a legal or ethical relationship of trust with another person. Typically, a fiduciary takes care of money or investments for other people.

When an investment manager acts in your best interests — taking care of your money and your investments and putting your interests ahead of their own — that is called a fiduciary duty. As explained in the aforementioned study, an advisor is said to have a “fiduciary duty to a client when the advisor has a legal duty to put the client’s best interest ahead of their own. It also means doing what is best for the client even if it means less money for the advisor.” The study found that only seven out of 10 investors believe that their advisor has a legal duty to put their best interests ahead of the advisor’s own.

Think about this. You go to the doctor when you’re sick and expect that doctor will do their best to get you well. In other words, that doctor should have your best interests at heart. It should be the same with your investment manager.

Why should you care about fiduciary duty?

It is extremely important that your wealth manager has a fiduciary duty because it could harm your long-term financial goals if they don’t. You may lose out on the best investments for you. You may also lose out because the investment products that are purchased for your portfolio won’t necessarily benefit you, but will likely benefit (i.e. compensate) your advisor.

Many in the financial industry feel that fiduciary duty should be mandatory for investment managers. Wealth Management Canada falls into this camp. Unfortunately, in Canada, fiduciary duty is not mandatory. Sadly, not every investment advisor will act in the best interests of their clients. That means you need to do your research before you decide to hire them. In this research, you need to ensure that: 

  1. They have the right credentials. The IEF study found that many Canadian investors could not say which securities licence, registration, or professional certifications their advisors held.
  2. They’re recommending investments/products that will benefit you, not them.
  3. Your manager is investing their wealth the same way they are investing yours.
  4. You understand the fee structure and your manager discloses the fees that they’re charging.

At Wealth Management Canada we know the importance of transparency and fiduciary duty. The investment companies we have identified understand and implement fiduciary duty in their practices. They all put their clients’ interests first — before their own, before their firm.

Fiduciary duty is an important aspect to consider when choosing an investment manager. After all, you want someone to take care of your money, not take your money.

Want to find a wealth manager who’ll put your interests first? Get started by completing the online questionnaire or send us a message through our contact form.

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