Fiduciary financial advisors have the ethical obligation and duty to put their client's best interest ahead of their own desire for financial gain. This should minimize conflicts of interest and place the financial advisor in a relationship of trust with their clients. For example, a fiduciary would not recommend a higher cost investment option to a client when a lower cost version of the same investment is available. In fact, advisors serving as a fiduciary generally do not receive commissions from sales, but earn fee-based compensation for their skills, service and advice.
Fiduciaries must:
Put their clients’ best interests before their own, seeking the best prices and terms.
Act in good faith and provide all relevant facts to clients.
Avoid conflicts of interest and disclose any potential conflicts of interest to clients.
Do their best to ensure the advice they provide is accurate and thorough.
Why choose a fiduciary financial advisor?
Financial professionals bound by fiduciary duties of care need to be transparent in their communications and disclosure of services, fees and recommendations. They must also make a reasonable effort to seek the best terms for their clients. Thus, if you work with a fiduciary you are more likely to benefit from solutions and recommendations that are truly right for you – often at the lowest cost possible. Confidence in knowing your best interests are being served can be increased when choosing a fiduciary financial advisor.
While not all non-fiduciaries are necessarily bad actors, working with a fiduciary makes it easier to ensure you are working with someone who has your best interest at heart. Moreover, if you’re working with someone who does not have a fiduciary duty of loyalty and care, you have fewer legal options in the event that you discover your interests have not been served.
How do I know if a financial advisor is a fiduciary?
Not all people working with investments and offering financial services are fiduciaries. Unfortunately, they may not be a fiduciary even if they use the term “financial advisor” in their title or job description. Regulations adopted in recent years strive to improve clarity and meaning of titles used with the public. An advisor serving in a fiduciary capacity is typically an investment advisor representative of an investment advisor entity that is registered with the SEC or state securities regulator.
Here are a few questions to ask as you consider working with a financial professional:
- How are you compensated for your services?
- What licenses and certifications do you hold?
- What services do you offer and who is your typical client?
- Can you provide a written statement of your fiduciary duty?
Bottom Line
When working with a financial professional it is key to find out if he or she abides by a fiduciary duty of loyalty and care. When managing your money and planning your financial future you clearly want to work with someone you trust and is acting in your best interest.