Is my financial advisor a fiduciary?

Financial planning is complicated. Developing an investment strategy, creating an estate plan, ensuring proper risk management, and even many day-to-day personal financial matters may require the assistance of a good financial advisor. But is your financial advisor a “fiduciary”? And what exactly does ‘confidant’ mean?

What is a Fiduciary Financial Advisor?

In short, a fiduciary financial advisor should recommend the best investment solutions to their clients. It is not enough that a product is simply ‘suitable’. A higher standard applies to a fiduciary advisor.

You should not assume that a financial advisor is a fiduciary, and before hiring an advisor, you should explicitly ask that they will always act in your best interest as a fiduciary. Fortunately, you can easily find fiduciary financial advisors these days if you know what to look for and ask the right questions.

Certified Financial Planners (CFP) are fiduciaries

One way you can be sure that your financial advisor is acting as a fiduciary includes hiring a certified financial planner, also known as a CFP. Upon earning the Certified Financial Planner designation, each CFP recognizes that they will adhere to the CFP Board’s Code of Ethics and Standards of Conduct and act as a fiduciary in providing financial advice to their clients.

This means that the CFP professional puts each client’s well-being above his own and that of the company he works for. In addition, the fiduciary duty requires the proper disclosure of material conflicts. In practice, the advisor must act with care, skill, prudence and diligence to best serve the client’s objectives. Finally, the consultant must comply with all laws and regulations.

‘Fiduciary’ is still an unclear term

What is problematic today is that the term “fiduciary” is still not widely known and understood. When looking for an advisor, many investors are fooled by generic terms like “financial advisor” and “senior planner.” Be careful. Believe it or not, there are so-called certification programs that can be completed in a few days that some consultants use to recommend expertise.

Making it all the more challenging to research and find a fiduciary advisor is that the responsibility rests with the individual. Most people are not financial experts. They also don’t have the time to search through dozens of consultancies to find the right counselor for their situation.

Choose an advisor who works in your interest

Why is it so important for your financial advisor to be a fiduciary? If your advisor is not working in your best interest, he or she may try to sell you a product that is not best for your individual situation.

For example, a sub-optimal investment solution can fill the advisor’s wallet with commissions and high fund fees, more than helping you achieve your long-term goals. Or a non-fiduciary advisor may recommend complex products and portfolios that are difficult to understand, hoping clients don’t question their strategy.

How do fiduciary financial advisors reduce conflicts of interest?

To reduce conflicts of interest, many fiduciary financial advisors may choose not to offer certain products directly, and instead recommend that their customers purchase products elsewhere. In other cases, when fiduciary advisors offer their clients certain products or services, they will disclose any conflicts of interest related to their recommendation, put their clients’ interests ahead of their own, and most importantly, act without regard for their financial interests.

We’ve asked fiduciary financial advisors if there are any products or services they don’t offer directly as a fiduciary, but sometimes recommend that their clients consider buying. Here’s what they had to say:

Brandon Renfro, CFP®, Ph.D., RICP®, EA Better Retirement Simplified

“I can sometimes recommend a SPIA for a small portion of a retiree income plan. While annuities are often complex, they are very simple. In exchange for a lump sum, the client receives a fixed compensation for life. It is quoted before purchase, so the trade-off is known with no surprises.

These can be helpful in providing a certain income that the customer can rely on, no matter what happens in the market or how long he or she lives. These can be good for retirees who have plenty of savings in a 401k or IRA, but no retirement or Social Security benefit that’s smaller than they’d like.

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Brandon Renfro, CFP®, Ph.D., RICP®, EA | Belonging Asset Management

🔗 Website | Asset manager profile

Jay W. Rishel, CFP®️ Providing independent, balanced and tailor-made solutions on your terms

“I believe it is essential for many clients to consider long-term care (LTC) coverage. However, I do not sell LTC products. It’s not that I can’t provide them, but the focus of my practice and skills is in other technical areas of financial planning. I would rather see the client consult a trusted LTC focused planner who can guide them more efficiently and effectively than I can.”

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Jay W. Rishel, CFP®️ | Overman Capital Management

🔗 Website | Asset manager profile

Darryl Lyons, CFP®, ChFC®, BFA, AIF Fee-Based Fiduciary Advisor

“As a fiduciary, I strongly believe that all our customers should have some form of identification insurance/protection. Many of our customers can afford the financial obligations that arise from a breach. However, the time involved for many busy people would be overwhelming without a third party working on their behalf. The challenge for me, as a fiduciary, is finding a quality product solution and staying on top of its ever-changing features and benefits.”

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Darryl Lyons, CFP®, ChFC®, BFA, AIF | PAX Financial Group

🔗 Website | Asset manager profile

How to find a fiduciary financial advisor?

You will find many fiduciary financial advisors on Wealthtender who are ready to help you develop a personalized plan to achieve your long-term goals.

For example, you can search the Wealthtender Guide to Certified Financial Planner Professionals to find CFP fiduciary financial advisors. You can also search the Wealthtender Guide to XY Planning Network (XYPN) Financial Advisors, as every XYPN advisor takes a fiduciary oath. Chartered Financial Analysts also agreed to a fiduciary duty when working with clients and you’ll find several on Wealthtender.

In addition to Wealthtender, you can also take a look at the website of the CFP Board. Simply enter your location and the scheduling services you are looking for. The “Find a CFP Professional” search tool quickly shows CFP professionals in your area. A Certified Financial Planner professional adheres to a strict code of conduct, which includes agreeing to a fiduciary duty.

In addition to the CFP Board’s website, investors seeking a fiduciary financial planner can use the NAPFA (National Association of Personal Financial Advisors) “Find an Advisor” search. Financial professionals who are NAPFA members are fiduciaries who work for pay only and adhere to a strict code that is inclusive, customer-oriented and demonstrates competence. And you can visit the XYPN website to search among hundreds of fiduciary advisors.

Another due diligence tip: View an advisor’s form ADV through the SEC Investment Adviser Public Disclosure IAPD website. A Registered Investment Adviser (RIA) must register with the SEC. That relationship requires maintaining a fiduciary duty to customers. However, an extra step is to dig into the RIA form ADV. The ADV form simply discloses the business practices, conflicts of interest, and background of the consulting firm and its associates providing advice.

How much should it cost to work with a fiduciary?

The good news is that the cost of hiring a fiduciary advisor is no more expensive than hiring a non-fiduciary. Often fiduciaries only work for a fee, which often means an annual schedule of several thousand dollars a year. The fee structure of many advisors is based on ‘assets under management’, where you pay a percentage of your portfolio to the advisor annually. In general, you will not pay more than 1% per year.

It comes down to

A fiduciary advisor must act solely in the best interests of his clients. They agree to put the client’s financial circumstances above their own. With so many opaque investment products available today, working with a fiduciary is more important than ever.

Answers to Readers’ Questions

Are All Fiduciary Financial Advisors “Fee Only”?

Not all fiduciary financial advisors pretend to be ‘fee only’ financial advisors. While a fiduciary financial advisor does not have to be “fee only”, many advisors choose to earn income solely from fees and not commissions, based on the belief that the “fee only” method of compensation is the most transparent and objective. method is available.

NAPFA, an organization of financial advisors that requires its members to operate on a “fee only” structure, puts it this way:

NAPFA’s position is that the reimbursement method is only the most transparent and objective method available. This model minimizes conflict and ensures that your financial planner acts as a confidant. Fee-Only planners are compensated directly by their clients for advice, plan execution and ongoing asset management. All NAPFA members are required to work only within the Fee-Only structure and do not accept commissions for their work.

Fee-Only financial advisors can be paid by the hour, as an advance, as a percentage of assets (AUM), or as a flat fee, depending on the planner you choose.

Source: NAPFA – What is benefit-based financial planning?

Is Edward Jones a confidant?

Edward Jones offers a diverse mix of financial products and services to his clients, sometimes acting in a fiduciary capacity. You can visit the Edward Jones website to see how their financial advisors are remunerated and the types of fees and commissions you can get for each of the products and services they offer. You should also ask your Edward Jones financial adviser how they are remunerated for products and services.

Here are links to some of the resources available from Edward Jones with more information about the types of fees and commissions you can pay depending on the type or types of accounts you open with them:

Mike Zaccardi CFA

About the author

Mike Zaccardi, CFA®

Mike is a freelance writer for financial advisors and investment firms. He is a CFA® charterholder and Chartered Market Technician®, and has passed the Certified Financial Planner program courses.

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