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Why Fiduciary Advisors Are Considered the Better Choice for Financial Advice

A fiduciary is legally bound to act in their clients' best interests and place their interests above their own. This may not be the case with non-fiduciary advisors, whose primary motive may be to earn a commission by selling various financial products and services to you. Hiring a fiduciary financial advisor may be a wise decision for your financial needs and goals. Not only are they transparent in the financial services and advice they offer; they are also bound by a legal duty to protect their clients’ best interests.

Read below to learn more about fiduciary advisors and why they may be the better choice for your financial needs.

Who are fiduciary advisors?

The term 'fiduciary' has its roots in Roman law and refers to anyone entrusted with money or property as a guardian or trustee. It has since come to mean someone who is trusted to act in the best interests of another person or entity.

Fiduciary advisors are 'trustees' who have a legal obligation to act in the best interests of their clients. They are legally bound to put the client's interest ahead of their own, without regard to any personal or financial benefit they might receive. Fiduciary advisors may also be attorneys licensed by the state. Some fiduciaries can also be certified financial planners and accountants.

Fiduciary advisors are held to a higher standard than other types of advisors due to their fiduciary obligations, experience, qualifications and obligation to provide unbiased advice. As such, fiduciaries must follow specific rules when serving as an advisor, such as disclosing all fees and conflicts of interest upfront and keeping client records private and confidential at all times. Moreover, fiduciary advisors must only recommend investments and financial products that are in the client's best interests. Not to mention, they must understand their clients' needs and carefully consider all available options before making any recommendations.

Fiduciary financial advisors are also required to follow the rules and regulations set by regulators like the SEC (Securities and Exchange Commission). For example, some states require fiduciaries to maintain minimum net worth requirements or to register with state securities regulators before acting as a fiduciary advisor.

How to assess the suitability of a fiduciary advisor

The fiduciary advisor you choose, by law, must adhere to the suitability standards laid down by the Financial Industry Regulatory Authority (FINRA). Here are three standards that all fiduciary advisors should follow to ensure that the clients have access to unbiased advice and guidance. These standards include:

1. Reasonable-basis suitability

This requires the advisor to have a substantial basis for making a recommendation to their clients. Also, the fiduciary advisor must base all of their decisions on reasonable diligence.

2. Customer-specific suitability

Fiduciary advisors need to analyse the client's portfolio and form a reasonable basis to make a particular investment recommendation.

3. Quantitative suitability

This requires the advisor who controls the client's account to have a solid basis for performing a series of transactions. These transactions must be suitable for the client even if viewed in isolation.

Why do fiduciary advisors may make a better choice for your financial needs

Fiduciaries are financial professionals required by law to act in the best interest of their clients. They have a duty of care toward their clients and must make informed financial decisions after critically reviewing all the available information. They must also refrain from pursuing their private interest, which may harm the best interest of their clients' needs. A fiduciary also has a duty of loyalty toward their client, where they must disclose any plans or recommendations that fetch them a commission. Overall, a fiduciary advisor's experience and expertise can be invaluable in financial and retirement planning.

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Other things to keep in mind when dealing with a fiduciary advisor

1. The fees charged by the fiduciary

Fiduciary financial advisors charge an hourly rate or a flat fee. A fiduciary financial advisor may also charge additional fees for other services such as preparing tax returns and more. You may discuss with your fiduciary advisor their payment structures and requirements in advance. Remember, fiduciary advisors are not entitled to any commissions when they sell the investments that you hold. Thus, you must beware of any advisors that charge you a fee and also earn a commission selling your investments.

2. See if the fiduciary is the right fit for you

Before you finalise a fiduciary advisor to help you with your finances, you must ensure they are a perfect fit for you. Also, the advisor you hire must act as a fiduciary 100% of the time. You must mutually decide on a compensation structure and schedule a one-on-one talk before you finalise your commitment. Not to mention, you must also verify their credentials thoroughly and check for referrals. You may also inquire about their qualifications and the experience they have.

To conclude

Fiduciary advisors may be the best choice if you are looking for a professional who will work in your best interests since not every kind of advisor is legally mandated to do so. Before choosing to work with a fiduciary, make sure you do your research on their qualifications, credentials and also inquire about any potential conflicts of interest. Use the free advisor match tool to connect with experienced and qualified fiduciary advisors who can help you manage your money and plan for a secure financial future. Provide us with basic details about yourself, and the match tool will connect you 1-3 advisors that are best suited to meet your requirements.

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The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.