FIDUCIARY FOCUS

The term fiduciary is a good thing to hear if you're searching for a financial advisor. If a financial advisor is a fiduciary, he or she holds a relationship of trust with a client and abides by fiduciary duty. Fiduciary duty is the ethical obligation to act solely in someone else's best interest, which in theory should minimize conflicts of interest and make a financial advisor more trustworthy. Read on to learn more about what a fiduciary is and what fiduciary duty entails, as well as how to determine if the Advisor you are looking for is truly a Fiduciary.

 

What Is a Fiduciary?

By definition, a fiduciary is an individual who is ethically bound to act in the client's best interest. This obligation eliminates the conflict of interest concerns and makes a fiduciary's advice more trustworthy.

The term usually refers to someone who manages assets on the behalf of an individual, a family or a company. This person might be a banker, accountant, executor, trustee, board member, financial advisor or investment professional. In theory, a fiduciary can be anyone to whom you delegate personal, legal or financial choices. In other words, it's up to you to choose wisely. In the financial industry, an Investment Advisor who is a Fiduciary has either a Series 65 or 66 license. You can check a financial advisor on FINRA BROKER CHECK or the SEC website.

What Is Fiduciary Duty?

Also known as fiduciary responsibility, fiduciary duty is the obligation to put someone else's interests first. This duty is not just a matter of ethics –  it's a legal mandate that ensures that individuals receive the best possible financial advice. The mandate requires that fiduciaries act honestly, diligently and solely for your benefit.

Fiduciary duty protects you. It's like the financial version of the Hippocratic oath – and it's just as important.

Are All Financial Professionals Fiduciaries?

Surprisingly, not all financial professionals are fiduciaries. All investment advisors registered with the Securities and Exchange Commission or a state securities regulator are held to this standard. However, broker-dealers, stockbrokers and insurance agents are only required to fulfill a suitability obligation (per newly enacted Regulation BI). This means that while they must provide suitable recommendations to their clients, they don't have to put their clients' interest before their own. They may suggest products that are NOT in your best interest, or that benefit them more than they do you.

A financial advisor can help you prepare for your financial future. Since that's an important role, you may want to consider choosing a financial advisor who's bound to act in your best interest.

 

How Do I Know If a Financial Advisor Is a Fiduciary?

A 2017 survey by The American College of Financial Services found that 48 percent of people working with a financial advisor did not know if their financial advisor was a fiduciary. There are several resources available that can help you figure that out:

How Do I Vet an Advisor?

The vetting process shouldn't end with a broker check. Once you identify potential advisors, here are the sorts of questions you should be asking to ensure that the advisor suits your needs and has minimal conflicts of interest:

  • Do you have any disclosures?
  • How are you compensated?
  • What qualifications do you have?
  • What services do you offer?
  • How often are you willing to meet?
  • What type of clients do you typically work with?

You should also request a copy of a financial advisor's Form ADV (SEC-filed paperwork), which provides information about an advisor's business, pay structure, educational background, potential conflicts of interest and disciplinary history. That information is also available online through the SEC's Investment Advisor Public Disclosure tool.

Tips for Finding a Financial Advisor

  • Do your homework. Be sure to ask questions. Request a copy of a financial advisor's Form ADV. Take note of an advisor's fee structure, certifications, and any disclosures.
  • Ask around. Word of mouth can be a useful resource. Asking friends or family members for recommendations can be a good way gauge how capable and reliable a financial advisor is.
  • Look up registrations. An Advisor with multiple state registrations (especially if the states are not contiguous) can indicate that even when clients relocate they would prefer to retain that trusted advisor, rather than to find someone local. This is a good referral gauge.

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Lori Crilley, RFC®, CRC®


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Katelin Kalik

Katelin Kalik, RFC®, CDFA®


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