Prospective clients often ask whether or not Sanitas operates as a fiduciary. Most prospective clients ask the question because they read somewhere that they should only work with fiduciaries. Unfortunately most do not really know what it means to work with a fiduciary.
First, yes, Sanitas is a fiduciary to clients. As a registered investment advisor and as a CFP® certificant, I am required to act as a fiduciary to clients. Legally, that means I have a duty to act in the best interest of a client. The easiest way to understand what that means is to contrast the fiduciary standard with the suitability standard which applies to representatives of broker/dealers and insurance agents. A suitability standard simply means the product provided is reasonable for a client’s needs at the time of the transaction. It doesn’t have to be the best product available, it simply cannot be inappropriate. As an example, knowing that a client needs life insurance, an insurance agent may sell a policy which costs more and pays a higher commission. The policy is suitable because it directly addresses the client’s need for life insurance even though the policy structure and costs may not be in the client’s best interest. Under a suitability standard, the recommendation only has to be suitable, it does not have to be in the client’s best interest.
By contrast, as a fiduciary, my recommendations are held to a higher best interest standard. For the insurance client above, if there were no other differentiating factors, I likely would recommend the client take the lower cost policy as their best interest option. Of course, as a fee-only advisor, I’ve already eliminated the main conflict of interest in the industry by not accepting any commissions at all. I also do not accept or pay any referral compensation. It’s important to understand that a fiduciary doesn’t have to operate on a pro-bono basis and fully expects to be reasonably compensated for services provided. Having compensation does create a conflict of interest. The distinction here is that a fiduciary provides advice which is in a client’s best interest, and then charges a reasonable fee for that advice.