Wealthsimple is a whole new kind of investing service. This is the latest installment of our “Data” series, where we dig into the numbers to learn more about how the world of money works.

Imagine you're in a focus group. Exciting, right? Do you like the stackable chairs and conference room tables? Great. Now, Ms. Focus Group, let's ask you a focus group question. Picture your money guy, or your money woman, or your money algorithm. You know, the folks who work at the banks and investment firms and money management companies you may use. Those people all should have your best financial interests at heart, right? Legally? They are required to sell you the products that have the absolute best chance of high returns, correct? To not just sell you things because they, or their company, get more fees from it? If you're like most people, right about now you're saying, Yes, of course! In 2008, the RAND Corporation did a focus group with average Joe/Jane investors, and about 60% said they believed that anyone with an official-sounding title like investment advisor, financial consultant, wealth advisor, or investment consultant would have a responsibility to put them, the investor, first. And like you, they were wrong.

In order to tell you why that seemingly logical thing isn't true, you're going to have to learn about something that sounds really boring but is extremely important to your financial life.

The word fiduciary.

What's a Fiduciary?

The people who participated in that focus group were making a basic assumption: The folks entrusted to sell investments must be what are known as fiduciaries. A fiduciary is a technical term that describes a person or entity that puts an investor’s best interests ahead of their own or their company’s. Fiduciary is a term that's been used for hundreds of years in the laws governing trusts to describe a person you appoint to control your money if you can't or don't want to. One of the important things about a fiduciary is that they're legally forbidden from secretly profiting from this relationship and must put the needs of the client, also known as the trustor, ahead of their own. You've heard of solemn vows? A fiduciary duty is one of those.

You can understand why you'd want the person selling you financial products and managing your money to take such a solemn vow as this. But the problem is that the vast majority of these people are not fiduciaries. And, despite the best efforts of lots of legislators and watchdog groups, they're not going to be anytime soon.

In order to better understand the whole thing, we spoke to Barbara Roper, Director of Investor Protection for the Consumer Federation of America (CFA). She's about as close to the Batman of the financial world as you’ll find, sniffing out scuzzy financial practices in every crevice of the financial industry; since joining the CFA in 1986, she's been in a perpetual war with the special interests in the finance industry, attempting to force companies that thrive on being opaque and inscrutable to be more transparent.

Before we go any further, though, we need to talk about something that Roper (along with groups like AARP) was very much in favor of: the fiduciary rule, and it's pretty straightforward. It's a regulation that stipulated that anyone who provides retirement investment advice must be legally required to operate as a fiduciary. That is, with the interest of their clients — not their businesses — first.

It's a regulation with a lot of political baggage — even if it never went into effect. For a while, after the 2008 financial crisis, it looked as though the fiduciary rule might become a reality. Dodd–Frank Wall Street Reform and Consumer Protection Act, the massive 2010 law passed in the wake of the crisis, included a provision that would allow the Department of Labor, the agency with jurisdiction over regulating retirement accounts, to adopt the fiduciary rule. Big banks complained that the law would cost the industry tens of billions of dollars in revenues in its first decade. But the Obama administration instructed the Department of Labor to implement it nonetheless. It took a full six years for the Department of Labor to finalize the fiduciary rule's details, and the rollout came just in time for the election of Donald Trump who had campaigned on widespread deregulation throughout government. Unsurprisingly, shortly after he took office, his Department of Labor pumped the brakes on the rule. And then, in June 2018, the U.S. Fifth Circuit Court of Appeals (a court considered relatively conservative) ruled that the Department of Labor had “overreached.” “The fiduciary rule is officially dead,” a typical headline read following the ruling. The Ropers of the world — who advocate for consumers and investors — were crestfallen.

The good news, though, is there are still people out there who operate as fiduciaries. You just have to know how to look for them.

How Do I Know if My Money Person Is a Fiduciary?

Some financial services people must, by law, be fiduciaries. But not most.

As you may know, people who work in the world of money have lots of different titles. Brokers, for instance. Or financial advisors. Or wealth managers. You get the idea. They all sound like fine titles, but there's one that actually means something when it comes to ethics.

“All of the research that's been done shows that investors can't tell a broker who calls himself a financial advisor from a financial consultant or a wealth manager,” says Roper. “People don't understand the differences in the services, how they get paid, or what their legal obligations are. They don't know that the only one of those titles that’s actually regulated is the 'financial advisor.' ”

What she means is that, under current law, those calling themselves financial advisors are fiduciaries. Which means they're required to work in the best interest of clients. Unlike, say, broker dealers, a fancy term for investment salespeople, who need only adhere to what’s called a “suitability” standard, which turns out to be an incredibly loose term that just means whatever they sell has to be in the general ballpark of the client’s needs and time horizon. Not the best, not the most effective — merely suitable. Would you want your doctor to give you “suitable” medicine or “the most effective” medicine? One of Roper's biggest goals is eliminating the low bar of the suitability standard in favor of industry-wide fiduciary standards like ones that have been adopted by Canada, the UK, Australia, India, and the Netherlands.

But if that happens, it'll be in the future. For now the bottom line is this: if you're getting advice from any financial professional who isn't a fiduciary, you're going to want to be very, very careful.

Are You Guys a Fiduciary?

Why, we’re so glad you asked. Wealthsimple Invest is indeed a fiduciary. And we act in a fiduciary capacity in all transactions, even those in non-retirement accounts that would have fallen outside of the purview of the fiduciary rule. It’s part of Wealthsimple’s DNA; we’re fee-only, which means the only money we make comes from the small fees we very transparently tell you about — we don’t make extra cash from pushing clients into our own funds, and we will never, ever steer you into an investment because we get a kickback or a free Bahamas boondoggle courtesy of a mutual fund company. The only priority is finding the best investment at the lowest fee. Want it in writing that we’re a fiduciary? Send us an email. We’re happy to comply.

What's the Worst That Can Happen if Someone Sells Me Something With Higher Fees?

Because of compounding, small differences in fees or performance can be a big deal over time.

Consider mutual funds, for instance. Mutual funds can have very high management fees and “loads” — which are essentially sales commissions paid by the investor to the company that manages the fund. Someone who's not a fiduciary is legally allowed to sell you, for instance, a mutual fund that may be more expensive and whose fees benefit his or her own company, without being a better fund.

Or for a more dramatic example, consider this. A few years ago, The New York Times exposed how JPMorgan — a storied, trusted company that became a leader in selling retirement accounts to regular investors — pressured and even fired financial advisors who refused to put clients into JPMorgan’s propriety funds. Even in cases when the funds’ records of performance weren't nearly as good as other funds. Why? Because the bank would make more in commissions. “It said financial advisor on my business card, but that’s not what JPMorgan actually let me be,” one former broker told the paper. “I had to be a salesman even if what I was selling wasn’t that great.” Investments were often funneled into what the company called the “Chase Strategic Portfolio,” which charged high fees, then funneled them into JPMorgan’s own funds, which provided an entire other layer of 1%–2% fees, allowing the bank to double dip.

And anyone who has ever run the numbers knows that the higher the fees, the lousier the return.

So What Can I Do to Make Sure I'm Not Getting Fleeced by These People?

The president of the Institute for the Fiduciary Standard, another nonprofit that pushed hard for the rule, advised that before investing, everyone should not only ask but insist that advisors sign a declaration that they’ll be acting as fiduciaries at all times.

Roper doesn't think even that will work: “The big firms with these practices are going to be reluctant to let their advisors sign anything,” she says. She advises those who want to find true fiduciaries to seek out advisories that are so-called “fee-only,” meaning the only thing you pay is the percentage they charge you annually to manage your money. The way to tell if your money person is fee-only is to ask directly if they receive compensation from any source other than the fees you pay. “Real protection for investors doesn’t come from a firm’s regulatory status, but from their business model,” Roper says. “All you can do is find yourself a fee-only advisor who embraces the high fiduciary obligation to avoid conflicts and to put the customers' interests first at all times. They exist, and the good news is, they exist at an affordable price for even small accounts.”

Wealthsimple makes smart investing simple and affordable. Illustration by Giacomo Bagnara.