To get to the heart of the matter, Investment managers can be compensated in two ways: they can be compensated as the result of a transaction, or they can be compensated via a fee schedule, regardless of any transaction taking place. Advisors who are compensated by a transaction (paid by a vendor) cannot operate as a fiduciary. Advisors who are compensated by a fee schedule are paid directly by the investor (not a vendor) based on the agreed upon fee. The fee-based advisor is able to enter into an asset management agreement adhering to a fiduciary standard.
An investment advisor who adheres to a Fiduciary Standard is one who is putting their client’s interests first. The advisor who adheres to this standard is not conflicted or incented by a vendor, and is able to exercise his best efforts to act in good faith and in the best interests of the investor. A fiduciary advisor will provide written disclosure of any conflicts of interest which may compromise the impartiality or independence of the advisor.