There’s plenty of financial jargon that you don’t need to know in order to succeed financially. But one term that is essential to your money and how it is handled is the word fiduciary. The concept can seem confusing to people, as many assume that all advisors, whether they’re stockbrokers or financial planners, are required to act in their client’s best interest. But that’s not the reality. It’s important to understand the distinction between different types of advisors’ roles and what it means for you and your money.
Fiduciary financial advisors are legally and ethically required to act in their clients’ best interests. They have a duty to be loyal to their clients and ensure they disclose any potential conflicts of interest that may come up. Any advice they give is based on the client’s financial situation and investment goals.
A fiduciary advisor can’t, for example, suggest you buy a security that will provide a kickback for them but not benefit you. Their number-one priority is giving you advice that strives to help you reach your financial goals.
Choosing a fiduciary financial advisor means that you should not be misled or mistreated. It means you have a professional in your corner rooting you on as you journey toward financial security.
How Do I Know If My Advisor Is A Fiduciary?
While some advisors may toss around the term lightly, not all advisors are fiduciaries. Brokers, insurance agents, and real estate agents acting on the other party's behalf are not required to serve in a fiduciary manner. They are however, expected to deal fairly with their customers and to know their financial situation well enough to recommend suitable investments for that particular client.
Wall Street brokerage firms can sell proprietary products, so their advice may potentially still be biased. Additionally, while brokers must inform clients that they’re choosing to be paid commissions, if the investor neglects to read the email notification, they won’t know where their broker’s interests lie.
While it can seem confusing to sort out all these titles, it’s worth it to make sure your advisor is working in your best interest. If you’re not sure that your advisor follows the fiduciary standard, ask them these three questions.
1. Are you a fiduciary advisor?
Let’s start with the most obvious question. Yes, you can ask an advisor if they’re a fiduciary! A fiduciary advisor should have proof they’ve signed a Fiduciary Oath, which declares an advisor’s commitment to a fiduciary code of ethics. (1) They should also provide you with a copy of their Form ADV Part 2, which discloses their obligations as a fiduciary advisor. (2)
2. How do you get paid?
Financial advisors get paid all types of ways—from flat hourly rates down to a combination of fees and commissions. There’s nothing inherently wrong with any of these payment methods, but many fiduciary advisors are fee-only. This minimizes conflicts and ensures that your financial planner acts in your best interest.
3. What’s your financial planning process like?
A fiduciary advisor asks questions and gets to know your financial goals before they ever make investment recommendations. They know that a good look at your entire financial picture is paramount to your long-term success. So, ask your advisor to describe their financial planning process. If it doesn’t start with you, keep looking.
Do I Need A Fiduciary?
If you want to feel confident and empowered to make the best decisions for yourself and your finances, the answer is yes. Fiduciary advisors are open and transparent and act as your advocate as you navigate your financial journey.
At Harbor Wealth Management, we pride ourselves on being investment fiduciaries. Whether you’re looking for an advisor for the first time or have been burned by bad financial advice in the past, we’re here to help you create a solid plan that helps you pursue your goals. To get started, contact Jeremy by email at firstname.lastname@example.org or by phone at 985-605-7185.
About Jeremy Smith
With nearly two decades of experience in the financial services industry, Jeremy Smith serves as a dedicated and knowledgeable financial advisor and the founder of Harbor Wealth Management. He specializes in serving retirees, pre-retirees, small business owners, and widows, providing a comprehensive array of investment management and financial planning services. Jeremy aims to serve his clients as a financial guide who is here for their every need, helping families find lasting plans so they can focus on what matters most to them. To learn more about Jeremy, visit www.myharborwm.com or connect with him on LinkedIn. You can reach Jeremy directly at email@example.com or by calling his office at 985-605-7185.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. You should discuss your specific situation with the appropriate professional.