When you’re deciding on a financial advisor to help you manage your investments or plan for retirement, it can be confusing to know the differences between the various titles and credentials a financial professional holds. You may have been advised to find a fiduciary financial advisor. But what does that actually mean?
The term “fiduciary” originated from the Latin word “fidere”, meaning “to trust”. In simplest terms, a fiduciary is someone who acts on behalf of another person, putting the interest of the other party ahead of their own. In this context, it refers to a financial advisor having a fiduciary duty to act in the best interest of a client and to disclose any potential conflicts of interest.
What Is a Fiduciary Duty?
A Fiduciary is held to the highest standard and are expected to always carry out the following core duties, according to the CFP Board’s Standards of Conduct:
- Duty of Loyalty – Act in the client’s best interest; avoid any conflicts of interest
- Duty of Care – Act with care, skill, prudence, and diligence
- Duty to Follow Client Instructions – Comply with all terms of engagement and all reasonable and lawful directions of the client
Are All Financial Professionals Fiduciaries?
You would think every financial advisor should put their client’s interests above their own. However, that’s not always the case. There are two standards- the suitability standard and the fiduciary standard. The biggest difference between an advisor that is a fiduciary and an advisor acting under a suitability standard, is the decision-making process. Rather than acting in the client’s best interest, some advisors are only bound by a “suitability” standard. Meaning they must have a reasonable belief that an investment is suitable. The advisor is required to offer suggestions that would generally fit a client’s circumstances, but their suggestions can be more costly and for their own benefit.
Is Your Financial Advisor a Fiduciary?
Even if an advisor claims to offer fiduciary services, it is important to use due diligence. Not only will you have a higher level of trust with your chosen advisor, but you will also have peace of mind that they are carrying out a higher standard of care. For example, if an advisor holds the designation of Certified Financial Planner (CFP®) they must uphold a fiduciary standard. This means they have passed the required coursework, exam and have at least 3 years of experience in the industry. And, they have committed to adhere to the CFP Board’s Code of Ethics and Standards of Conduct when providing financial advice to clients. You can research individual advisors using the CFP Board search tool to view an advisor’s history and experience. It can get confusing with the multitude of titles and designations. If in doubt, just ask! Those that are a fiduciary will proudly uphold the title.
Do I Need My Financial Advisor To Be a Fiduciary?
Not everyone needs the guidance of a fiduciary. Knowing what you are looking for in an advisor will help guide you in finding the right fit. For some, they may enjoy picking their own investments and just need help executing a trade. While others are looking for more guidance and comprehensive planning that a fiduciary can offer. No matter what type of advisor fits your needs, it’s important to know what value they’re providing. Having a good understanding of what a fiduciary is and knowing what you’re looking for in terms of services, will help protect you from being taken advantage of. Refer to our list of questions to ask when considering an advisor for your wealth management needs.
If you’re looking for a financial advisor for the first time or seeking to change advisors, ML&R Wealth Management may be a good fit for you! As a registered investment advisor (RIA), with over 25 years of experience, we offer a broad variety of fiduciary services. ML&R offers a transparent, fee-only service that promotes a relationship of trust between our clients and our wealth management advisors. Contact us to discover what a ML&R Wealth Management financial advisor can do for you!