Financial planning is complicated. Developing an investment strategy, creating an estate plan, ensuring proper risk management, and even many everyday personal finance matters may require the help of a good financial advisor. But is your financial advisor a “fiduciary”? And what exactly does “fiduciary” mean?

What is a Fiduciary Financial Advisor?

In short, a fiduciary financial advisor must recommend the best investment solutions for their clients. It is not enough that a product is simply “suitable.” A higher standard applies to a fiduciary advisor.

You shouldn’t assume a financial advisor is a fiduciary, and before you hire an advisor, you should ask explicitly if they will always act in your best interest as a fiduciary. Fortunately, you can easily find fiduciary financial advisors today if you know what to look for and the right questions to ask.

“Fiduciary” Is Still an Unclear Term

What is problematic today is that the term “fiduciary” is still not widely known and understood. Many investors are fooled by generic terms such as “financial advisor” and “senior planner” when seeking an advisor. Be careful. Believe it or not, there are so-called certification programs that can be completed in a few days that some advisors use to suggest expertise.

Making it all the more challenging to research and find a fiduciary advisor is that the onus is on the individual. Most people are not financial experts. They also do not have the time to sift through dozens of advisory firms to find the right fiduciary for their situation.

Choose an Advisor Who Works in Your Best Interests

Why is it so important that your financial advisor be a fiduciary? If your advisor is not working in your best interests, then he or she might attempt to sell you a product that is not the best for your individual situation.

For example, a sub-optimal investment solution might line the advisor’s pocket with commissions and high-fund fees, more than it helps you achieve your long-term goals. Or a non-fiduciary advisor could recommend complex products and portfolios uneasy to understand, in hopes clients you won’t call their strategy into question.

How Do Fiduciary Financial Advisors Mitigate Conflicts of Interest?

In order to reduce conflicts of interest, many fiduciary financial advisors may choose to not offer certain products directly, and instead, recommend their clients purchase products elsewhere. In other instances, when fiduciary advisors offer their clients certain products or services, they will disclose any conflicts of interest regarding their recommendation, place their clients’ interests ahead of their own, and most importantly, act without regard to their financial interests.

We asked Sean Polley, CWM, and Chief Executive Officer of Polley Wealth Management, to share his insights as a fiduciary wealth manager on the value of fiduciary advice. Here’s what he had to say:

Hiring a fiduciary financial advisor is important because they are legally and ethically obligated to act in their clients’ best interests. This means that they must put their clients’ interests ahead of their own and avoid conflicts of interest.

Some advisors are part-time fiduciaries, meaning they hold both an advisor license (Series 65/66) and a broker license (Series 6/7). Holding both licenses gives the advisor the option to take the relationship in either direction, which can mean that a client may think they are getting fiduciary guidance and advice when they may not be.

Here are some of the key reasons why it is important to hire a Series 65/66-only fiduciary financial advisor:

1. Professionalism: Fiduciary financial advisors are held to a higher standard of professionalism and ethics than non-fiduciary advisors. They are legally required to act with a duty of care, loyalty, and confidentiality towards their clients, and they are held accountable for any breaches of this duty.

2. Objectivity: Fiduciary financial advisors must act in the best interests of their clients, even if it means recommending products or services that are not in their own best interests. This ensures that clients receive unbiased advice and recommendations.

3. Transparency: Fiduciary financial advisors must disclose any conflicts of interest that may exist and provide complete and transparent information about their fees and compensation. This ensures that clients understand the costs and benefits of the advice and services they receive.

4. Expertise: Fiduciary financial advisors are often highly experienced and qualified professionals who have a deep understanding of financial markets, investments, and financial planning strategies. They can provide valuable guidance and advice to clients, particularly those who are less experienced in financial matters.

5. Peace of mind: By working with a Series 65/66-only fiduciary financial advisor, clients can have confidence that their interests are being protected and that they are receiving objective and trustworthy advice. This can provide peace of mind and help clients make better financial decisions.

How Much Should It Cost to Work With a Fiduciary?

The good news is that the cost of hiring a fiduciary advisor may not be any more expensive than hiring a non-fiduciary. Often, fiduciaries work on a fee-only basis, which often means an annual planning charge of a few thousand dollars per year. Many advisors’ fee structure is based on “assets under management” whereby you pay a percentage of your portfolio to the advisor each year.

The Bottom Line

A fiduciary advisor is required to act solely in their clients’ best interests. They agree to put the client’s financial circumstances above their own. With so many opaque investment products available these days, working with a fiduciary is more important than ever.