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AugustWhy Should I Work with a Fiduciary Financial Advisor?
Handling your finances can be overwhelming. It can be hard to separate your money from emotions, potentially leading to issues such as overspending and ignoring debt. Many people also lack the knowledge and experience to make the most informed decisions. Even if you think you’re doing the right thing with your money, it can help to have an impartial professional guide you through the ups and downs. You’ve worked hard to build your assets and want to do whatever you can to help ensure they’re managed appropriately. If this sounds like you, consider asking a fiduciary financial advisor for help.
So, what sets a fiduciary financial advisor apart? Many fiduciary advisors are registered with the U.S. Securities and Exchange Commission (SEC) or a state securities regulator and are legally bound to put your best interests first.
We’ll help you understand what to expect when working with a fiduciary advisor to navigate your financial needs.
What Is a Fiduciary?
A fiduciary doesn’t just handle money. By law, they provide advice and manage assets to benefit your priorities, not theirs. Compared to a non-fiduciary, who works on commission and can be personally motivated to meet company quotas or push high-commission products, a fiduciary financial advisor must always make recommendations and decisions based on the best interest of the client.
What Are the Different Types of Fiduciary Relationships?
In the finance world, you’ll often hear advisors described as fiduciary or non-fiduciary. By now, you can generally tell the difference between the two. But which type of advisor is best for your personal needs? And of equal importance, your assets?
At the base level, fiduciary relationships represent situations where someone is legally and ethically bound to make recommendations and decisions with their client’s best interest in mind. Besides advisors, some similar relationships include a lawyer and client or guardian and ward. It starts with discussing your goals and preferences. After getting to know you, a financial advisor will consider your risk tolerance, time horizon, and other factors to create a personalized plan for your needs.
Financial Advisors and Clients
You already know that a fiduciary financial advisor is legally required to prioritize your best interests over theirs. But what does that actually mean? A fiduciary financial advisor endeavors to eliminate all conflicts of interest and honestly discloses to their client any conflicts that cannot be avoided. They also clearly explain fees and how they’re paid and charge a reasonable rate for their services. Knowing that your wealth is in the hands of a fiduciary financial advisor can help you feel more confident that your goals are always top of mind.
Money Management
Is your money being managed according to your wishes? Understanding the different fee structures can help you better understand whether your money is in the right hands. There are three compensation options for financial professionals:
– Commission-based
– Commission and fee
– Fee-only
According to the National Association of Personal Financial Advisors (NAPFA), the fee-only model is the most transparent and objective. This commission-free payment model holds fiduciaries to higher standards to act in your best interests while minimizing conflict. Fee-only advisors may be paid a percentage of your assets (AUM), as a retainer, hourly, or as a flat fee.
What Is a Fiduciary Financial Advisor?
Finding the right fiduciary advisor may not happen instantly. Nearly every financial professional can do the “right” thing by putting their clients’ needs first. However, a fiduciary financial advisor
is legally required to do so. This establishes an elevated relationship of trusted guidance, especially concerning one of the most intimate topics — your money. Beyond financial decisions, you also want to feel comfortable discussing personal needs and goals with your advisor.
Fiduciary Duty vs. Suitability Standard
How can you tell if your advisor is a fiduciary? Any advisor operating under the suitability standard can act in your best interests. However, a fiduciary advisor is legally obligated to do so. That includes both making suitable and well-considered recommendations and advocating the right products for you, instead of pushing high-priced ones for personal gain.
In general, financial “standards of care” have been getting better. Most recently, in 2020, the standard was overhauled when the Securities and Exchange Commission (SEC) required stock brokers and investment dealers to follow the best interest standard. This rule doesn’t offer as much protection for clients as the fiduciary standard, but it at least raises the bar for how stock brokers and dealers treat their clients.
The simplest way to tell if you’re working with a fiduciary advisor is to ask. You can also verify that your advisor is registered with various governing bodies or professional groups. Here are the most common ones:
– Registered investment advisors (RIAs) are registered with the Securities and Exchange Commission or a state bureau. They must list RIA conflicts of interest and outside business activities.
– Certified Financial Planners™ (CFPs®) have a professional CFP® Board certification. They’ve rigorously trained, are held to higher standards, and must uphold their fiduciary duty to clients.
– Chartered Financial Analysts (CFAs) adhere to an ethical code that imposes a fiduciary relationship between the client and the CFA. These professionals also have extensive investment management training.
When you’re working on building wealth, you want to know that your goals are always the priority. Working with a fiduciary financial advisor can help you feel confident that your hard-earned wealth is in the right hands. If you have any questions, contact the Per Stirling team for guidance.
Frequently Asked Questions About Fiduciary Financial Advisors
Want to know more about how to choose a fiduciary financial advisor? Or what to expect when working with one? Here’s more information about how collaborating with a fiduciary advisor can be a smart investment in your financial well-being.
Are All Financial Advisors Considered Fiduciaries?
Not all financial advisors are fiduciaries. The difference is that fiduciaries are legally and ethically bound to always prioritize their clients’ best interests. Many fiduciaries work for Registered Investment Advisors, or RIAs. They may also be certified financial planners (CFPs®).
How Do I Know If My Advisor Is a Fiduciary?
Any advisor can say they’re making the best decisions for you. But how can you be sure? The first step is to understand the difference between fiduciary and non-fiduciary advisors. This can help you understand when an advisor is truly making decisions based on what’s appropriate for you.
Other ways to help determine if you’re working with a financial fiduciary advisor include:
– Ask them directly
– Verify their credentials
– Understand how they’re paid
– Review their registration
Is a Robo-advisor a Fiduciary?
Many robo-advisors act as fiduciaries. As with human advisors, you can check whether the robo-advisor is registered as an RIA with the SEC. Disclosures can also provide clues. Any disclosures filed with the SEC can reveal information about fee structures, business practices, and fiduciary obligations.
How Do I Find a Fiduciary Financial Advisor?
The fiduciary financial advisor sector continues to grow. Current data suggests there are over 15,000 fiduciary advisors. Consider the following resources to help find a fiduciary financial advisor:
– Look for Registered Investment Advisors (RIAs)
– Verify their credentials
– Understand their fee structures
– Ask them directly
– Ask for referrals
Ready to Make Confident Decisions with a Fiduciary Financial Advisor?
Does the thought of managing your own finances stress you out? If so, that’s okay. It’s hard to stay neutral when your hard-earned assets may be at stake. Fortunately, a fiduciary financial advisor is legally bound to always represent your best interests. A fiduciary advisor’s allegiance is to their client, and to the client’s unique and specific needs. If you’re ready to make confident decisions with your money, contact a fiduciary financial advisor to get started.
At Per Stirling, we are committed to maintaining the highest degrees of ethics and integrity. That means your needs are always prioritized. Contact us to learn more about how we can objectively guide you with strategies that align with your long-term goals and risk tolerance.
*This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
SEC registration is not an endorsement of a firm or its services, nor does it indicate that the firm or its Advisors have attained a particular level of skill or ability.
- “What is Fee-Only Financial Planning?” The National Association of Personal Financial Advisors. “https://www.napfa.org/financial-planning/what-is-fee-only-advising”.
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Henricks, Mark. “Fiduciary Duty vs. Suitability Standards”. March 22 2022. Smart Asset. “https://smartasset.com/financial-advisor/fiduciary-vs-suitability”.
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“Industry Snapshot Confirms Record Number of Advisers, Staff Supporting Sector”. Investment Advisor Association. “https://www.investmentadviser.org/industry-snapshots/”.
This content has been reviewed by FINRA. Prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Services, Inc.
