What Is a Fiduciary Financial Advisor?
Almost anyone can call themselves a financial advisor. Unfortunately, that doesn’t mean they’re required to offer good advice. Fiduciary advisors, on the other hand, are required by law to prioritize the best interests of their clients.
Here’s what you need to know to protect your finances from mismanagement and theft.
Key Takeaways
Fiduciary financial advisors are legally and ethically bound to act in your best interests.
They are held to “fiduciary standards” rather than the laxer suitability standards that most financial advisors are held to.
This means they must offer personalized, transparent financial advice, prioritizing your needs above their own.
What Is a Fiduciary Advisor?
A fiduciary advisor is a financial advisor who is legally obligated to put your interests first. This is known as “fiduciary duty.” This fiduciary duty is the highest standard of care that a financial advisor can be bound by.
You might be wondering why this needs to be clarified. After all, aren’t all financial advisors required to prioritize their clients? No! Unfortunately, most financial advisors are NOT bound by fiduciary duty. They are allowed by law to put themselves or a third party above their clients’ interests. They aren’t even required to disclose these conflicts of interest!
When you understand how lax the rules are for most financial advisors, you can see why seeking out a fiduciary advisor is always recommended.
Key Aspects of Fiduciary Duty
The word “fiduciary” means trust. Fiduciary advisors are bound by strict rules designed to foster complete trust from their clients. If they fail to meet those standards, they can be taken to court and forced to pay fair compensation.
So, what are those standards? Let’s take a look at the key elements of that duty.
1. Duty of Care
Fiduciary advisors must advise their clients with all the care, skill, and diligence that a reasonably prudent person would use. They are required to take the time to understand their clients' financial needs and goals before making any recommendations. Then, they must ensure that advice is always aligned with the best interests of their clients.
2. Duty of Loyalty
Fiduciary advisors must place their clients' interests above their own and avoid any conflicts of interest. For example, they should not recommend financial products that provide the advisor with a commission unless those products are truly in the client's best interest.
3. Duty of Disclosure
Fiduciary advisors must give clients all the information they need to make informed, transparent decisions. For example, if the fiduciary advisor would receive a commission for giving a certain piece of advice, they must inform the client of that fact, disclosing a potential conflict of interest.
4. Duty of Personalization
Fiduciary financial advisors must tailor their advice to the unique needs of each client. This means developing customized financial strategies that consider the client’s specific objectives, such as:
Retirement planning
Investing
Estate planning
Risk management
PRO TIP: Did you know? While 97% of Americans think financial advisors should be required to put their client’s best interests first, only 11.2% of advisors in the U.S. abide by these standards!
Hear from Real Fiduciary Financial Clients
Building a plan for family and generosity
Fiduciary Standards vs. Suitability Standards
Fiduciary standards are the highest standard of obligation that financial advisors can adhere to. This provides much more protection for clients than the more common suitability standards used by other financial advisors.
Under suitability standards, advisors must recommend financial products and strategies that are “suitable” for their clients. However, suitability does not necessarily mean that these recommendations are the best possible options available.
Advisors using suitability standards are also not required to disclose conflicts of interest like fiduciaries are. This can lead to recommendations that may benefit the advisor through commissions or other incentives, rather than prioritizing the client's best interests.
If a financial advisor is governed by suitability standards and puts their own interests above yours or fails to disclose an important conflict of interest, you may not have any legal recourse against them. They are simply held to lower standards!
This makes it essential to find a financial advisor who has pledged to abide by the rules of fiduciary duty.
Fee-Only Fiduciary Advisors: The Most Reliable Help in Finance
Some fiduciary advisors are registered to practice under both sets of standards, fiduciary and suitability. These are called dual-registered advisors. Dual-registered advisors can act as fiduciaries one minute and a broker the next. Avoid these advisors at all costs!
Instead, always look for a fee-only fiduciary advisor. These are advisors who ONLY use fiduciary rules and hold NO brokerage or insurance affiliations. They are legally obligated to put your interests first and disclose any potential conflicts at all times.
Only 11.2% of advisors in the U.S. are registered this way. The good news is that the advisors at TrueWealth Financial Partners are among them!
How to Find a Fiduciary Advisor
There are a few steps you can take to find a fiduciary advisor.
1. Ask Directly
The simplest way to determine if an advisor is a fiduciary is to ask them directly. Inquire about their fiduciary status and ensure they are legally bound to act in your best interests.
PRO TIP: When asking this question, be sure that they ALWAYS act as fiduciary advisors! Ensure they are fee-only fiduciary advisors, not dual-registered.
2. Verify Credentials
Check if the advisor holds certifications that require fiduciary duty, such as:
These designations indicate a commitment to fiduciary principles and adherence to ethical standards.
3. Research Regulatory Standing
Use regulatory databases like FINRA’s BrokerCheck and the SEC’s Adviser Info to verify the advisor’s regulatory status, history, and any past disciplinary actions. These tools provide valuable insights into the advisor’s professional background and compliance.
Hear from Real Fiduciary Financial Clients
From Corporate Finance at Boeing to Financial Freedom with Family
Fiduciary Financial Advisor FAQs
What is a fiduciary financial advisor?
A fiduciary financial advisor is a professional legally obligated to act in the best interests of their clients. They must prioritize their clients' needs above their own, avoid conflicts of interest, and provide transparent and prudent financial advice.
How is a fiduciary financial advisor different from other financial advisors?
Fiduciary financial advisors must adhere to the fiduciary standard, which requires them to act in the best interests of their clients at all times. Other financial advisors may follow the suitability standard, which only requires that their recommendations be suitable for the client’s situation, not necessarily the best option available.
Why should I choose a fiduciary financial advisor over other types of advisors?
Choosing a fiduciary financial advisor ensures that you receive reliable advice and recommendations. Fiduciary advisors are legally bound to act with care, loyalty, and transparency, providing you with peace of mind and a higher level of trust in the financial advice you receive.
How do fiduciary financial advisors charge for their services?
Fiduciary financial advisors may charge fees based on:
Assets under management (AUM): A percentage of the client’s total investment portfolio
Hourly rates: Based on the time spent on financial planning or investment advice
Flat fees: Fixed fees for specific services, such as developing a financial plan
Understanding the fee structure helps manage costs and ensures transparency.
What questions should I ask to determine if a financial advisor is a fiduciary?
To determine if a financial advisor is a fiduciary, ask the following questions:
Are you legally obligated to act as a fiduciary at all times?
How are you compensated?
Do you have any potential conflicts of interest?
Can you provide references from other clients?
What certifications or credentials do you hold?
Is TrueWealth Financial Partners a fiduciary advisor?
Yes, TrueWealth Financial Partners adheres to fiduciary standards, ensuring that we always act in our clients' best interests! Our commitment to fiduciary duty includes providing transparent, personalized financial advice and avoiding all conflicts of interest.
Work With a Fee-Only Fiduciary Advisor Today!
Choosing a fiduciary advisor will ensure that your financial future is managed with the highest level of integrity and care.
At TrueWealth Financial Partners, we pride ourselves on adhering to fiduciary standards. Our client-first philosophy ensures that all financial advice and strategies are designed to meet your unique needs and goals, free from conflicts of interest.
Schedule a free consultation today, and we’ll be happy to answer all your questions!
Hear from Real Fiduciary Financial Clients
From DIY’ers to Retirees