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What is a fiduciary advisor?
Everything you need to know about fiduciary financial advisors
What is a fiduciary?
Would you try to resolve a legal dispute without hiring a lawyer? Would you perform complicated bookkeeping without hiring an accountant? Then why would you try to take care of your financial planning without hiring an advisor? It’s the same idea, yet we don’t think of it that way.
If you want to ensure your financial future is secure, you need to hire an expert – and not just any expert. You need a fiduciary financial advisor on your side. But what are fiduciary advisors, and how can you find one? This type of advisor is on the rise as consumers get smarter about their finances. It’s time for you to join the trend.
What is fiduciary duty?
The term “fiduciary” has been a buzzword in the financial community for the last few years. Most know that it’s a term that is sometimes used to describe financial advisors, but there’s actually much more to it than that.
Let’s back up. Many people are surprised to learn that federal and state regulations don’t protect their investments as much as they thought. Brokers – those who work for investment firms and persuade the firm’s clients to invest in various stocks, bonds, mutual funds and so on – are paid on commission. This means they have a personal incentive to occasionally stretch the truth. Plus, the only standard for what they can sell you is that it is “suitable” for you – not that it’s your best investment or a great decision.
On the other hand, fiduciary financial advisors operate with fiduciary duty. This is a legal duty to act in your best interest. Fiduciary duty ensures there is no conflict of interest between the advisor and the client and that the advisor makes no profit beyond the fees paid by the client.
If you didn’t know this, you’re not alone. You can tell from the video below how confused many people are by the term.
What is a fiduciary financial advisor?
A fiduciary financial advisor is an independent registered investment advisor who doesn’t answer to a company with their own agenda regarding what you buy. They are not a broker selling you products. Instead, a fiduciary advisor answers to the law, which requires them to put your interests first and to remove (or at least disclose) any potential conflict of interest. Being a fiduciary financial planner involves more than just diversifying investments and making recommendations: A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties.
Fiduciary financial advisors really started getting attention with the DOL Fiduciary Rule and subsequent SEC Regulation Best Interest. These rules have changed the industry and prompted fiduciary advisors to take their customer service to the next level. Gone are the days when advisors simply recommend stocks or other products and collect a commission on them. Now, a fiduciary financial advisor must focus on providing the ultimate customer experience by developing a deep relationship with their clients so that their advice and recommendations are tailored to their clients’ interests.
Why do I need a fiduciary advisor?
Based on the concept of fiduciary duty, you can see why it’s essential to choose a financial advisor who is a fiduciary. A fiduciary advisor offers what you thought you had all along – conflict-free advice. This is essential because conflicted advice, backdoor payments and hidden fees are costing Americans about $17 billion per year, according to the President’s Council of Economic Advisors. That’s about 1% of your returns being gobbled up. Although 1% may not sound like much, a 1% reduction in fees can mean your money will last nearly a decade longer during retirement.
When you work with a fiduciary financial advisor, the emphasis is on the relationship – not the commission. In most cases, you pay them a flat fee directly for their advice, and they don’t earn income from sources like commissions, trading bonuses or trailer fees. This means they have no incentive to sell you products that provide them with this sort of income. A fiduciary advisor’s clients are the ones who pay them – meaning they keep only their clients’ best interests in mind. The goal of a fiduciary is the same as yours: to help you achieve financial freedom and unlock an extraordinary life.
How to find a fiduciary financial advisor
You know that you want a fiduciary advisor in order to ensure you’re getting advice that’s in your best interests. But with all the financial titles out there – broker, financial planner, portfolio manager, investment counselor (the list goes on) – how do you find a real fiduciary? And how do you find the best of the best?
1. Ask the advisors you know
Maybe a friend recommended their favorite advisor or your family has an advisor they’ve used for years, but you’re not sure if they are a fiduciary. You can always ask them! Fiduciary financial advisors will operate on a fee-only basis, and advisors must let you know if this isn’t how they operate.
2. Use a database
The National Association of Personal Financial Advisors (NAPFA) offers the largest database of the country’s fee-only advisors.
3. Get recommendations
Many fiduciary advisors prefer to work via word of mouth, so a recommendation from a family member or friend can go a long way.
No matter how you find your fiduciary advisor, be prepared with a list of questions to ask them to determine if they’re right for you. Always ask about their proven track record and request a copy of Form ADV, which advisors use to register with the Securities and Exchange Commission (SEC). Determine their experience and ensure they have a broad background and advanced degrees. Finally, don’t be afraid to negotiate fees – and always get everything in writing.
Ready to truly dive into how your finances feed into other aspects of your life? You’re ready to find a fiduciary financial advisor. You’ll also thrive at one of Tony Robbins’ Life & Wealth Mastery events, where you will revitalize your body, mind and finances toward a life of wellness and prosperity. It’s never too early – or too late – to start down the path to total financial independence.