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Everything You Need to Know About Hiring a Fiduciary Financial Advisor

Hiring a good financial advisor is critical for your future. A financial consultant holds the ripcord of your monetary future. But not all financial experts are equally qualified. Experts can differ in their educational backgrounds, expertise, and even ethical practices. Hence, you must be prudent in your selection and engage with the one that best suits your needs. For a secure financial future, it is advisable to find someone who places your interest before their own and offers you legitimate advice. Someone you can bank upon and trust with your money. Ideally, a professional who is governed by ethical rules of conduct. Befitting all these parameters, a fiduciary financial advisor, can be an ideal choice.

Here is everything you need to know about hiring a fiduciary financial guide:

What is a fiduciary financial advisor?

In reference to a financial advisor, fiduciary means that the professional is liable to put your needs before their own. These experts have a fiduciary duty towards you. Generally, a financial advisor is a person who is in charge of your monetary matters, including retirement planning. But you cannot trust anyone with your money unless you are sure of its safety and optimal use. That said, a fiduciary relationship with a financial planner provides you with an assurance that your money is in good hands. Fiduciary consultants are governed by an ethical code of conduct. They also lawfully pledge to act in your best interest at all times. Unlike, a normal financial advisor who is not under the pledge and could offer biased decisions for individual gains.

Ideally, fiduciaries aim to minimize disputes, ensure transparency, and make every effort to work in your favor. In all, these counselors:

  • Put your requirements before their own.
  • Serve in good faith and pledge to always be honest and transparent with terms, facts, etc.
  • Disclose and minimize all possible feuds.
  • Put in sincere efforts to provide accurate and in-depth financial advice.
  • Do not use your assets for their benefit.
  • Receive direct payment from the client and no other pay-outs or commissions from investment companies.

What is a fiduciary duty?

By definition, a fiduciary duty is a lawful accountability to place the interest of another party before your own. When a financial advisor is bonded by a fiduciary duty, he or she will work for your benefit and monetary advantage. In case, the fiduciary duty is violated, it allows you to file for legal action.

A fiduciary relationship is violated or breached when the advisor fails to honor his or her obligation. Some examples include:

  • Making unnecessary transactions to earn more commission rather than to benefit you.
  • Misrepresentation or false representation of financial information or transaction.
  • Engaging in an unauthorized trade.
  • Negligence leading to a monetary loss or legal trouble.

You can legally (financially and civilly) hold a fiduciary responsible for any deliberate actions they make that are not in your favor.

How to determine if a financial advisor is a fiduciary?

When hiring a fiduciary financial professional, select an advisor registered with the U.S. Securities and Exchange Commission (SEC) or a state securities regulator. All other professionals like stock-brokers, dealers, insurance agents, etc. are not governed by fiduciary duty and hence, only conform to a suitability standard. As per this, the person can offer you a suitable counsel but not necessarily the ideal one per your interest.

That said, you can use the various sources such as WiserAdvisor’s Advisor Match Tool, Garret Planning Network, National Association of Personal Financial Advisors (NAFPA), Financial Planning Association, the Certified Financial Planners Board, etc. to hire a fiduciary. Online tools like WiserAdvisor’s Advisor Match Tool use complex algorithms to match you with pre-screened financial advisors in your area. The recommendations are provided after careful analysis of factors such as experience, compensation arrangement (fee-based or fee-only), licensing, and disclosures of the experts.

Once you have shortlisted the candidate, you should vet the expert on the following parameters:

  • Certifications and licenses
  • Average income earned
  • Services offered
  • Types of clients and industries expertise
  • Communication mediums and frequency
  • Written guarantee of a fiduciary duty

You should also check the Forms ADV and CRS, which is mandatory for financial professionals to file, as per SEC regulations. These forms will provide you insights into the fiduciary’s pay structure, educational background, disciplinary records, past conflicts, and much more. It is advisable to conduct a background check and ask for client references. Ideally, you can select a financial consultant that holds either of the designations mentioned below:

  • Certified Financial Planners (CFPs): CFPs are bonded by a fiduciary duty by the CFP Board of Standards. These experts follow fiduciary standards in financial planning areas such as retirement, tax, insurance, etc.
  • Chartered Financial Consultants (ChFCs): These counselors are under fiduciary obligation by the American College of Financial Services Code of Ethics.
  • Accredited Investment Fiduciary (AIF): This designation is issued by the Center for Fiduciary Studies to advisors that are fiduciaries.

What is the benefit of hiring a fiduciary financial advisor?

Here are some of the most significant benefits of hiring a fiduciary financial guide:

  • Assurance of your best interest: By hiring a fiduciary financial consultant, you can be sure that your money is in the right hands and is being invested to your advantage. Since the professional has a fiduciary duty, he or she is always obligated to place your needs before their own.
  • Complete transparency: All fiduciary consultants are registered with the U.S. Securities and Exchange Commission (SEC). In case, the financial advisors do not uphold their end of the relationship and ensure complete transparency in their actions and objectives, they can be held legally liable. In serious breaches, SEC can revoke the professional license of the individual or ban the advisor from the financial industry on the whole.
  • No discord: At the time of engaging with a fiduciary professional, you are made aware of all the possible areas of conflict. The financial expert will ensure that all conflicts of interest are minimized and disclosed in advance. Moreover, fiduciary advisors cannot use your assets and investments to benefit another client.
  • Navigate major life phases: When engaging with a fiduciary financial professional, you can be sure to deal with life’s uncertainties easily. Phases like marriage, childbirth, divorce, retirement, etc. might require a different investment approach, which can be obtained from a fiduciary consultant.
  • Maximize savings: With the professional expertise of a fiduciary financial advisor, you have higher chances to maximize your wealth in the long-run. Moreover, all suggestions and decisions are driven by your needs, which makes them even more beneficial for your financial security.

Should you have a fiduciary financial advisor?

You should engage with a fiduciary financial guide, if:

  • You want a professional who offers you honest financial advice and investment opinions, keeping you as a priority.
  • You want an expert vision on the composition of your entire portfolio, rather than just a specific product.
  • You want to achieve a defined financial goal, such as retirement planning, tax-saving, etc.
  • You are willing to pay for financial advice directly rather than through product commissions.

To sum it up

When it comes to money, you should always choose someone you can trust. By engaging with a financial advisor who is not a fiduciary, you would always be wondering if you are making the most of your money. Whereas, with a fiduciary financial professional, you can have peace of mind and assurance of your funds.

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