When you’re deciding which kind of financial advisor to choose to help you manage your investments or plan for your retirement, it can be confusing to know the differences between the various kinds of professionals and decide which one is right for you. In this article, we will explain what a fiduciary financial advisor is and why we recommend choosing this kind of wealth management professional to help you with your investments.
The Meaning of “Fiduciary Services”
Derived from the Latin fiduciarius — “entrusted” or “held in trust” — fiduciary services refer to financial services that are delivered in a relationship based on trust. In this context, a fiduciary is a person or organization that manages the assets of another person, family, or company and promises to act only in that person or entity’s best financial interests.
In practice, fiduciary duty entails the following behavior:
- Avoiding conflicts of interest
- Disclosing any conflicts of interest where they occur
- Explaining the risks and benefits of each investment opportunity as thoroughly and transparently as possible
- Seeking the best prices and terms for the client’s investments
- Refraining from using a client’s capital to benefit their own financial situation
What Kind of Professional Is A Fiduciary Financial Advisor?
It might seem obvious that a financial advisor should put their clients’ interests above their own. However, the nature of the investment industry is such that different legal requirements are placed on different categories of investment professionals. If you are asking “What is a fiduciary financial advisor?” you may also have come across several of the kinds of financial professionals that are not bound by a fiduciary duty, including:
- Stockbrokers
- Broker-dealers
- Insurance agents
Rather than being bound to put your interests first, these professionals are only bound by a “suitability” requirement, meaning that their asset management decisions have to take into account your:
- Financial circumstances
- Financial goals
- Risk aversion
While these three types of professionals are still not supposed to cause a financial loss to you through excessive trading or fees, they can still make decisions that put more money in their pocket than yours. You also have less avenues for legal action if your suitability-bound advisor acts in bad faith when compared to a fiduciary-bound advisor.
How to Check If A Fiduciary Financial Advisor Is What They Claim
Even if an investment company claims to offer fiduciary services, it’s important that you do your due diligence in confirming that this is true. Not only will you have a higher level of trust with your chosen advisor, you will also have peace of mind that the meaning of “fiduciary services” will keep you covered legally if the provider does not act in your best interests.
Public Registers
Before you even speak with the fiduciary financial advisor, what you need to do is search the list of investment advisors (RIAs) registered with the SEC to see if the individual or company appears there. All registered investment advisors with the SEC are bound by a fiduciary duty.
You can research individual advisors using the Certified Financial Planners Board search tool. For each advisor that you search, you will be able to view that advisor’s history and experience.
Fee Structure
The fee structure of a fiduciary financial advisor is what will give you an immediate clue as to whether the service really is a fiduciary or not. For example, any company that earns commissions or is “fee-based” (meaning a fee plus commissions) does not fit the meaning of “fiduciary services.”
A true fiduciary investment company — like ML&R Wealth Management — will offer their services on a “fee-only” basis. This means that you pay a fee that is either a percentage of your assets under management (AUM) or an hourly rate and your financial advisor earns nothing through commissions or kickbacks from the investment products that they recommend to you. This is the only way to ensure transparency in a highly lucrative industry and be certain that each and every recommendation is made solely with your best interests in mind.
Talking with the Provider about What It Is That Makes Them A Fiduciary Financial Advisor
After doing a thorough background check on the particular investment service, you can contact them directly and request a copy of their Form ADV (the paperwork that is filed with the SEC). This will tell you the details of their:
- Business
- Fee and pay structure
- Formal qualifications
- Any conflicts of interest
- Instances of past disciplinary action
You can then check this document against the information registered with the SEC using the Investment Advisor Public Disclosure tool.
Refer to our list of questions for ideas about what to ask beyond “What is a fiduciary financial advisor?” when considering a company for your wealth management needs.
Improve Your Advisor Relationship with ML&R Wealth Management Services
If you’re looking for a financial advisor for the first time or seeking to change providers, ML&R Wealth Management is here for you. A Texas-based firm with over 20 years of experience, ML&R Wealth Management offers a broad variety of fiduciary services, meaning that we deal with:
- Planning and advice for personal wealth management
- Helping women in transition achieve financial freedom
- Designing and managing corporate and 401(k) retirement plans
- Managing investment portfolios for institutions and non-profits
As a registered investment advisor (RIA), we offer a transparent, fee-only service that promotes a relationship of trust between our clients and wealth management advisors. Contact us to schedule your free initial consultation and discover what the ML&R Wealth Management fiduciary financial advisors can do for you!
