What Is a Fiduciary Financial Advisor?
A fiduciary financial advisor is a professional that makes financial decisions that are in the best interest of their clients. This is important to know, because not all financial advisors put your interest above anything else. In fact, anyone who are giving financial advice can call themselves a financial advisor.
Whereas, a fiduciary financial advisor is a registered investment advisor whom you entrust with your financial affairs. They are required by law to act in your best interest. It matters, because sometimes you place great trust and confidence in your advisor. As a result, there is a fiduciary relationship between you two.
To find a fiduciary financial advisor who serves your area, try using SmartAsset’s financial advisor matching tool .
What Is a Fiduciary, Generally?
A fiduciary is someone who must legally put your best interest first, before his or her own. Fiduciary exists in several areas such as law, real estate, medicine, finance, etc. For example, in law, an attorney owes a fiduciary duty to the client and must serve the client’s interests with the utmost loyalty and devotion.
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Therefore, an attorney is also bound to conduct itself as a fiduciary, occupying a position of the highest trust and confidence, so that, in all the attorney’s relations and dealings with the client, it is the attorney’s duty to exercise the utmost honesty, good faith, fairness, integrity, and fidelity, and if the attorney does not, the attorney is strictly liable or accountable to the client.
In the same manner, a fiduciary financial advisor who is advising you about investments, must recommend you investments that are best for you. They must tell you about their qualifications as well as the cost of their services.
However, not all financial advisors place their clients’ interests above their personal gain. In other words, they do not have to act in your best interest. So, they can recommend you financial products simply because they will pay them more. Only fiduciary financial advisors are required to place your interest above theirs.
This table below illustrates who is and who is not a fiduciary financial advisor.
ProfessionalFiduciaryDoctorFiduciaryLawyerFiduciaryAccountantFiduciaryStock BrokerNoTrust OfficerYesInsurance AgentNoRegistered RepresentativeNoCFP PractitionerMaybeFinancial PlannerMaybeRegistered Investment AdvisorFiduciaryNAFPA-Registered Financial AdvisorFiduciary
Duties Fiduciary Financial Advisors Owe You
Fiduciary financial advisors owe two kinds of duties to you: a duty of care and a duty of loyalty. This means that a fiduciary financial advisor must, at all times, serves your best interest and not subordinate your interest to its own. In other words, the fiduciary financial advisor cannot place its own interests ahead of your interests. This combination of care and loyalty obligations requires the fiduciary financial adviser to act in your “best interest” at all times.
Although investment advisers owe their clients a fiduciary duty, that fiduciary duty must be viewed in the context of the agreed-upon scope of the relationship between the adviser and the client.
Breach of Fiduciary Duty
When, in the course of his or her professional dealings with a client, a financial advisor places his personal interests above your interests as a client, the fiduciary financial advisor is in breach of his or her fiduciary duty by reason of the conduct. A few examples of breach of a fiduciary duty includes failing to disclose conflict of interests, investing without the client’s approval, excessive trading to earn commissions, etc.
So a question you might ask is: what happens when a fiduciary financial advisor breach his fiduciary duty?
When something like that happens, you may have a civil claim against your fiduciary financial advisor. To prove your claim, you will need to establish that your advisor was indeed fiduciary, breach their duty of care and loyalty, and you incurred damages as a result of the breach. If you are successful, you may be awarded damages. The financial advisor will likely face disciplinary action.
Choosing the Best Fiduciary Financial Advisor
Now that you have an idea what a fiduciary financial advisor is and the importance of working with one, you should start working with one as soon as possible.
Choosing a fiduciary financial advisor is crucial to the success of your financial planning. Even a great plan can go awry if a fiduciary financial advisor fails to uphold his or her fiduciary duties. Finding a fiduciary financial advisor, however, can be overwhelming. In other words, knowing which one is indeed a fiduciary can be difficult.
SmartAsset’s financial advisor matching tool is perhaps the best way to find an independent financial planner who you can trust. That is because each advisor has been vetted by SmartAsset and is legally bound to act in your best interest.
The free matching tool will pair you up to 3 financial planners near you based on your needs. The way it works is very simple:
Answer a few questions: you let Smart Asset know what you’re looking for in a financial planner, so they can find a match near youSee your local financial planner matches: based on your answers, Smart Asset will match you with up to three financial advisors in your area.Book appointments: you can use Smart Asset’s online tools or concierge service to book an appointment.
If you’re ready to be matched with local financial planners that will help you achieve financial goals, get started now.
Who Is Not A Fiduciary Financial Advisor
As mentioned above, not all financial advisors are fiduciary. Financial advisors who are brokers, for example, do not owe you any fiduciary duties even if they are giving you financial advice. While the law still requires them to recommend investments that are right for you, they may also consider the commission they make from selling you an investment.
You will know that a financial advisor is not fiduciary if they have the following statements on their websites or marketing materials. In fact the Securities and Exchange Commission (SEC) requires brokers to have them:
Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons’ compensation, may vary by product and over time.
In conclusion, it is important to work with a financial advisor who put your best interest first. That’s why SmartAsset’s free matching tool makes it easier to find a fiduciary financial advisor in your area in less than 5 minutes.
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Work With the Right Financial Advisor
You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.