Image Source: © Savkoand277 | Megapixl.com
A fiduciary is better than an advisor as it promises to act in the client's best interest, including the financial interests. Any strategy recommended by the fiduciary must be the one they would go for themselves, had they been in the shoes of their client.
Any provisions provided to the fiduciary can be taken away if misused, and the fiduciary would be charged with legal action. A fiduciary is associated with lesser conflict of interest than other financial advisors and is expected to maintain a high transparency level.
Any agreement with a fiduciary involves the trustee and the beneficiary. The legal power that a fiduciary is entitled to includes access to the client’s money, property, or wellbeing of the beneficiary. A fiduciary’s actions should not break the trust of the client.
A fiduciary must not make decisions that are beneficial to himself and detrimental to the client. A fiduciary can not carry out additional expenses on behalf of the client. This includes hiring incompetent people who are not fit to carry out the expected task.
The deal is made official through a fiduciary agreement describing the relationship and responsibilities of the parties.
Fiduciary can be broadly divided into governmental and non-governmental forms. Other types of fiduciaries include:
Fiduciaries must fulfil two main duties: the duty of care and the duty of loyalty. However, there may be times when more is expected out of fiduciaries, depending on the type of client. These two duties are the minimum expected responsibilities out of financial fiduciaries. These duties can be better explained as follows:
An additional duty that fiduciaries must take care of is the duty to act in good faith. The client places his faith in the fiduciary, which must be honored back. Out of all available options, only that option should be chosen, which best fits the client’s criteria.
Fiduciary obligations may not be acceptable everywhere. For example, investment brokers can not fall under the category of a fiduciary. However, there is something called a suitability obligation that they must adhere to.
Suitability obligation only requires the accountable party to go after that option, which is the best fit for the client. While choosing the best option, they may not put their client’s interest above their own.
Under the suitability rule, should deliver the recommendations given after considering the client's financial outlook, future goals, purpose, and risk-taking capacity. The client must not incur additional costs, and there should not be any excessive trades on his behalf. This can lead to a situation where the professionals put their own interests above that of the client.
Image source: © Mustangmarshal | Megapixl.com
Since the fiduciary is mandated by the law to follow the required duties, it becomes illegal if they are not fulfilled. Legal proceedings might take place in such a case. The court may decide to sue the fiduciary upon breach of contract.
In return, the client may receive compensation for the breach.
What is Wall Street? Wall Street, the Mecca of Financial Transactions in the US, is located in Lower Manhattan City of New York State. ‘Wall Street’ has become another name for financial elitism in the US. Wall Street houses the two largest stock exchanges in the world by market capitalisation, New York Stock Exchange (NYSE) and National Association of Securities Dealers Automated Quotations (NASDAQ). Wall Street is also home to various other stock exchanges, brokerage markets and banking headquarters. Notable among them are the New York Mercantile Exchange, the New York Board of Trade, New York Futures Exchange (NYFE), Goldman Sachs, etc. Brief History of Wall Street: The term ‘Wall Street’ is said to have originated from the Dutch word ‘de waalstraat’ much earlier in the 17th Century, when New York was a part of New Amsterdam and an actual wall existed at the location during 1685-1699. During that time, this area was used as a slave trading market as well as a securities exchange site. However, after the independence of the US, and in the early 19th Century, it became a site for both residential as well as business hubs. However, slowly and steadily, the business outpaced the residential part and Wall Street became the hub of all financial transactions in the US. It was only during the 20th Century that many skyscrapers came into existence on this street, the tallest of them being 40 Wall Street, which is also known as the Trump Building. Wall Street is now one of the most famous tourist attractions in the US and the Wall Street Bull attracts many tourists every day for a photo opportunity. The iconic bronze sculpture represents the aggressive financial optimistic environment and a symbol of prosperity. Image Source: Shutterstock How does Wall Street work? Wall Street houses businesses that collectively control trillions of dollars and move the markets every single day. As stated earlier, Wall Street has become a symbol of all financial transactions in the US. Wall Street functions to provide a platform for institutions to raise legitimate capital funding. The process is conducted in a centralised trading arena where those wanting to generate funds are provided with a medium of connection. The trading on Wall Street can happen in various forms - be it by issuing bonds or selling the ownership in the businesses through stocks. The government also regularises the capitalism process happening on Wall Street daily. These regulators provide the money to the productive users in a very smooth manner. Secondly, the financial hub also provides a secondary market to businesses to find investors, in order to raise capital. This bridge helps the markets move towards success. Moreover, Wall Street also houses firms which assist the investors so that they can manage their primary profession or activity. The outsourcing procedure is conducted via the professionals referred to as brokers or dealers and are registered investment advisors. They are bound by a fiduciary duty and act towards their clients’ best interest. These advisors are also asset management companies. Usually, the high earning individuals who are willing to invest and grow their wealth, take the assistance of these asset management companies and focus on generating more money for them. Wall Street can also be considered as a repository for investments across various securities. Wall Street is most commonly known for facilitating buying and selling shares. Individual investors trade the shares of outstanding stocks via their retirement and brokerage accounts. These investors are interested in the daily fluctuations of some of the major indices. Dow Jones Industrial Average and S&P 500 stock market indices have big players and investors trading every day. Image Source: Shutterstock What is the role of market makers on Wall Street? The trading revolves around the market makers at Wall Street and they usually facilitate the action in the market and earn a fee for providing their services. A lot many factors decide the movement of prices of traded securities. A mix of factors like sector news, management changes, company performances etc. decide if the prices are going up or down. However, market makers are also one of the biggest factors which have an impact on the share prices. There are individual professionals on the exchange floors facilitating these factors. The electronic communication networks are also part of market makers. Each transaction conducted on the securities exchange requires a party to take the opposite side.
A Registered Investment Advisor is either an individual or a company which handles the portfolio of high net worth individuals (or HNIs) and advises them concerning buy, sell, or hold off an investment-grade asset. The Registered Investment Advisors have a fiduciary duty towards their client, which makes them obliged to paramount client’s interest and avoid conflicts of interest.