What is a fiduciary duty & why does it matter to investors?

Trust, transparency and financial expertise are just a few important qualities an investor should look for when searching for the right individual to manage their wealth. In today’s marketplace, there is a significant difference among financial professionals that many investors are not aware of. There are those who have a fiduciary responsibility and those who do not.

In Canada, there are over 121,000 registered financial professionals. 97% of these professionals are referred to as “Financial Advisors.” However, only approximately 3% of those individuals are registered with a fiduciary duty to act in the best interests of the client. The remaining number of these financial professionals are registered as “dealing representatives,” which is simply a salesperson licensed to sell financial products.

So, what is a fiduciary responsibility?

A fiduciary responsibility is a legal obligation that entails trust, confidence, and requires an individual to strictly advise in the best interest of their clients. In the financial services industry, being a legal fiduciary holds the registered financial professional or team of professionals to a higher standard of accountability. Their job is to make money for the client, whereas “dealing representatives” are incentivized for the firm and for themselves.

Let’s clarify some industry job titles

There are a number of job titles among members in the financial services industry, and it’s not always clear to investors what these individuals are qualified to do.

  • 97% of registered financial professionals are Financial Advisors = BAD
  • 3% of registered professionals are Financial Advisers = GOOD

The term “Financial Advisor ” is an unregulated job title and frequently seen in large Canadian banks. This means anyone in a bank can have it, without requiring specialized qualifications. As a Financial Advisor, there’s no obligation to sell an investor a product that best suits their financial goals. In fact, there could be instances where a Financial Advisor sells some of the least beneficial products simply because it’s in their best interest, they produce a higher commission or they’re pressured to hit revenue targets.

As an investor, you may also see the job title Financial Adviser (notice the “e”). While sounding very similar, this position and the responsibilities involved are drastically different. A Financial Adviser refers to a registered financial professional who has a fiduciary duty to the end investor. As defined by the Ontario Securities Commission (OSC), the title of “Adviser” is a legal term under securities law that describes a person or company that is registered to give advice about securities, whereas an “Advisor” is not. One letter makes all the difference.

Another thing to keep in mind is that the term “Adviser” can be used interchangeably with the following job titles: Portfolio Manager, Investment Counsellor, Asset Manager, Investment Adviser, Investment Manager and Wealth Manager. All of these job titles have a legal duty to act with care, honesty and in the best interests of their clients. Before entering the investment industry, these individuals require the highest level of education and professional qualifications to ensure that they are best fit to advise clients on their financial investments.

The Benefits of Investing with an “Adviser”

There are a number of long-term benefits that come with investing with a legal fiduciary or “Adviser.” When you begin working with an Adviser, they will develop a written agreement – known as an Investment Policy Statement – to outline your specific investment goals. This foundational document is a reference point for the Adviser to select investments and make discretionary changes to your portfolio over time. Some additional benefits of working with an Advisor include:

  • Advisers are registered and regulated by provincial securities commissions. In Ontario, this governing body is referred to as the OSC
  • Advisers must meet specific financial reporting, capital and insurance requirements to protect a client’s investments and ensure full transparency
  • Advisers are not paid by commission or based on volume of buying or selling investments
  • Advisers have lower management fees compared to typical mutual fund management fees
  • When you invest with an Adviser, your money must reside within a custodian financial institution as an extra measure of protection and safety

Given the large number of registered financial professionals in Canada, it’s essential for investors to understand exactly who they are entrusting their life savings and investments with. In doing so, investors can be assured that they are receiving unbiased advice, honest guidance and the financial expertise required to meet their unique goals.

At Avenue Investments, we are an independent private wealth manager, trusted fiduciary and partner-owned firm that focuses on helping clients achieve financial stability over the long-term. We build trust and confidence by owning 100% of what our clients own. Being a legal fiduciary, our investment team is held to a higher standard of accountability and we deliver on this promise by cutting our management fees in half for our equity portfolios during down markets.

1000 667 Avenue Investment Management