Google holds websites that discuss topics relating to “Your Money or Your Life (YMYL)” to higher standards than those that do not. YMYL websites cover finance, health, legal, and safety topics. As a reader, it is critical that the information you receive is accurate and expert advice.
A fiduciary financial advisor is legally and ethically bound to act in your best interest. Like YMYL websites, it is important that fiduciary financial advisors are transparent and open about their recommendations and their reasons for making them.
What is a fiduciary?
A fiduciary is a person who is legally and ethically required to act in the best interests of their clients at all times. They have an ethical obligation to ensure that their financial recommendations are in your best interests, not theirs.
Fiduciaries have a legal duty to act in the best interest of their clients. They must avoid and disclose any potential conflicts of interest in order to establish a bond of trust with their clients. Only certain financial advisors are bound by fiduciary duties. For this reason, it is critical to understand whether your financial advisor adheres to fiduciary duties and does not receive any benefit from recommending one financial product over another.
What’s the difference between a fiduciary financial advisor and a broker-dealer?
According to the Investment Advisor Act of 1940, a fiduciary financial advisor has a responsibility to ensure that the financial plan they recommend to a client is in their best interest. It does not provide specific regulations, only a broad directive that all investment advisors have a fiduciary duty.
A broker-dealer may recommend an investment or transaction based on a lesser standard, called the suitability standard. The Financial Industry Regulatory Authority sets the suitability standard, requiring the broker-dealer to have a reasonable belief that the product or transaction they are recommending is in the client’s best interest.
A broker-dealer buys and sells securities such as stocks, bonds, and mutual funds on behalf of their clients (brokers) and/or for themselves or their organization (dealers). They earn commissions for selling securities and financial products.
How can you find a fiduciary financial advisor?
When creating your financial plans, it is essential to ensure that the advice you receive is of high quality and in your best interests. Verify that your potential financial advisor has been registered and included in the U.S. Securities and Exchange Commission’s advisor database to confirm their fiduciary duty to provide financial advice in your best interests. The SEC refers to financial advisers as investment advisors.
Enter your potential financial advisor’s name and company in the Investment Advisor search bar, and the individual or firm list will be populated.
You can review the following information in the SEC database:
- Financial advisor’s name and CRD number
- Whether they are a financial advisor (fiduciary duty) or a broker
- Any disclosures they may have
- Years of experience
- Business location
- State licenses
The National Association of Personal Financial Advisors (NAPFA) also has a database of fee-only financial advisors who have a fiduciary duty to act in their clients’ best interests.
What is a Certified Financial Planner?
A certified financial planner is a financial advisor who has completed rigorous training, met experience requirements set by the Certified Financial Planner Board, and passed the certification exam. You can check whether your financial advisor holds CFP credentials by searching the CFB Board Database. You can learn their current CFP certification status, CFP board disciplinary history, and whether they have made a bankruptcy disclosure in the past 10 years.
Financial advisors may charge a flat fee, an hourly rate, or a fee based on a percentage of a client’s assets. Advisors who offer fee-only financial planning options charge for their time and expertise and do not earn their income from commissions.
When searching for a financial advisor, it is essential to verify that they have the knowledge, expertise, and experience to fully evaluate your current financial situation and develop a financial plan. However, it is equally important to verify that they have a fiduciary duty to work in your best interest and do not have any potential conflicts of interest that may cloud their judgment when recommending financial products.
Ask your financial advisor if they are a fiduciary, review their credentials, verify whether they use a fee-based or fee-only fee structure, and check the SEC database.
Working with a wealth manager who uses a fee-only financial planning structure can ensure you make the best financial decisions for yourself and your loved ones. Ready to secure your financial future? Call us today at 866-395-1786 to get started.
