Do a search on Google and you’re going to find a lot of financial professionals advertising help for everything from your investment portfolio to your retirement plan. But how do you know which professional is right for you? We believe that the best way to start for most people is by talking with a fiduciary financial advisor.
What Is a Fiduciary Financial Advisor?
A fiduciary financial advisor is someone who is legally obligated to put clients’ best interests first. Note that the key phrase here is “fiduciary” and not necessarily “financial advisor.” When you start searching for a financial professional, you’ll find that they go by a lot of names, including financial planner, wealth advisor, investment advisor, and so on.
The title is less important than the advisor’s responsibility to you, so it is important to understand that not every financial professional has the responsibility to put you first.
This will come as a surprise to many Americans, as recent research found that nearly half of Americans believe all advisors are fiduciaries. And a joint study by the U.S. Securities and Exchange Commission (SEC) and the RAND Corp. found similarly: that 40% of investors think that both brokers and advisors are required to put client interests first.
Unfortunately, this isn’t true. Some financial professionals such as brokers (professionals who complete stock transactions on clients’ behalf) need to recommend only suitable products. That means there could have been a product better suited to your needs, but you didn’t learn about it since it would have earned the professional less of a commission.
This isn’t to malign brokers or the work they do. It is only to alert you to the potential that your interests may not always align with someone who isn’t acting as your fiduciary.
A new SEC rule—Regulation Best Interest—strives to bridge the gap between the fiduciary rule and the suitability standard. The new rule will require brokers to act in clients’ best interests when making a securities recommendation. They also need to be clear about any commissions they will receive.
This is an important step, but consider the fiduciary who must always act in your best interest: Their responsibility to you isn’t transactional; it is an undivided loyalty that lasts your entire relationship.
How Do You Know Who Is a Fiduciary?
One easy way to find a fiduciary is to seek out a Registered Investment Advisory firm. RIA firms are registered with the U.S. SEC or a state agency and are required to serve as fiduciaries.
You can also look at the designations that individual advisors have. Some certifications require advisors to adhere to a fiduciary standard of care, including:
- CERTIFIED FINANCIAL PLANNER™ (CFP®)
- Chartered Financial Consultant® (ChFC®)
- Accredited Investment Fiduciary® (AIF®)
You can also consider the firm’s fee structure. A company that earns commissions on the products they sell you has an inherent conflict of interest. That’s why we are a fee-only RIA, which means we don’t ever receive commissions. We get paid by our clients for the services we agreed to provide.
The fee-only structure aligns the interests of the advisor with you, the client. As an independent, fee-only, fiduciary RIA, your advisor is working for you.
One important note: “Fee-only” and “fee-based” are not synonymous. Depending on the service the fee-based firm provides, they may be getting paid by you, receiving a commission—or both.
The best way to determine if a potential firm is a fiduciary? Ask them. See if they are always a fiduciary and, if not, under what circumstances they are. If they are an RIA, they will be able to give you a Form ADV, an SEC-required document that discusses pay structure, any disciplinary history, advisor backgrounds, and more.
Where Can You Find a Fiduciary Advisor?
As a fiduciary wealth management firm in San Mateo and Vancouver, we have worked with many people who didn’t understand what a “fiduciary” was when they contacted us, nor how to find one.
To find a fiduciary advisor in your area, check out the CFP Board’s Let’s Make a Plan, which maintains a database of CFP® professionals. You can verify an advisor’s CFP® status or search for an advisor by state or zip code. While you are there, read these 10 questions to ask a potential financial advisor.
Schedule a complimentary meeting with a fiduciary advisor to see how we can help you.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice