Is your financial advisor a fiduciary? How to find a fiduciary financial advisor in your area:
What is a Fiduciary Financial Advisor?
Looking for afinancial advisor or a financial planner? An important distinction to learn is whether or not the advisor is a fiduciary.
The most important thing to know when looking for a fiduciary financial advisor is what exactly that term means.The definition of a fiduciary is an individual who has a legal obligation to act in the best interest of another person.
As such, a fiduciarywill disclose any conflicts of interest that arise and resolve them in the client’s favor as well as avoid using the client’s assets in any way for their own benefit. Fiduciaries are obligated to put their client’s best interests above their own.
It is increasingly hard to tell if someone is working as a broker or investment adviser because currently MOST (60% of “financial advisors”) are now registered as both (1).This dual registrant will work as a fiduciary when building a financial plan, but then switch hats and work under the lesser brokerage firm standard of advice called Best Interest when selling financial products. Is the advisor required to affirmatively tell the client when theyhave switched hats and are working under the lower regulatory standard? The answer is clearly “no”. Why would someone do business this way? By being dually registered and offering both fee-based programs and product sales, they are able to keep the combined revenue from both sources, while pretending to work in the best interests of their clients.
When the person providing you advice is not a fiduciary they may make investment decisions that may be in their own best interests, such as earning them higher commissions or other bonuses.
Finding out whether your prospective financial advisor is a fiduciary or not is an important part of the selection process, but determining which advisors are fiduciaries and which are not, is not always clear. Here we offer a few ways to help find an advisor who is also a fiduciary.
How to Find a Fiduciary Financial Advisor
To find a fiduciary financial advisor, we recommend you ask friends and colleagues for recommendations, consult trusted advisors, or use online sources to find fiduciary financial advisors near you. We elaborate on each of these methods below.
Ask a Friend, Family Member, or Colleague if they Know a Trusted Fiduciary
Above all else, we recommend your search for a financial advisor begins with those in your life whom you trust. You may or may not get recommendations for a fiduciary specifically, but you will get honest feedback from someone you trust. Be sure to ask any advisors referred to you if they are fiduciaries.
How to Check if Someone is a Fiduciary usingOnline Sources
Firms that are Registered Investment Advisors (RIAs) are regulated by an agency of the US government, the Securities and Exchange Commission (SEC). The SEC has strict rules and regulations governing advisory firms, and by law, RIAs are fiduciaries and are required to act only in the best interests of their clients. You can use a few online databases to find firms which are registered as RIAs.
- NAPFA.org (The National Association of Personal Financial Advisors)
NAPFA.org provides a database of financial advisors who have a fee-only structure and who are also fiduciaries. Learn more about why a fee-only structure is important in our article, What is a Fee-Only Financial Planner/Fee-Only vs. Fee-Based Financial Planning. We hold NAPFA in high regard and admire the work it does to educate the public about financial planning and to highlight advisors who commit to their clients with a fee-only structure. Visitnapfa.orgto check their database. - SEC (U.S. Securities and Exchange Commission) Adviser Database
You can also research potential advisory firms through theSEC’s adviser search tool. If the advisory firm is a federally Registered Investment Adviser, and thus a fiduciary, it will have what is called a Form ADV filing available to be viewed online. This document includes a plain-English brochure describing the firm’s services, compensation methods and other matters that you can use to determine fiduciary responsibility.
About Modera Financial Planners
We are proudly a fee-only, independently-owned financial planning firm that acts as a fiduciary for our clients. We have built our organization to put our customers’ interests first, as evidenced by our fee-only fee structure and fiduciary responsibility.
If you’re interested in our services, pleasecontact us. If you would like to learn more about financial planning, wealth management, and finding a financial advisor,please visit other areas of our education section.
Contact an Experienced Fiduciary Financial Advisor Near You
Contact us
"*" indicates required fields
Sources
1. Wall Street Journal, June 15, 2019, “Confused About Financial Advisors? You’re Not Alone”
As an expert in the field of financial planning and fiduciary responsibility, I bring a wealth of knowledge and experience to guide you through the intricate landscape of choosing a financial advisor. My expertise is grounded in a comprehensive understanding of the fiduciary role, regulations, and the dynamics within the financial advisory industry.
Let's delve into the key concepts presented in the article, "Is your financial advisor a fiduciary? How to find a fiduciary financial advisor in your area":
1. Fiduciary Definition: A fiduciary is an individual who has a legal obligation to act in the best interest of another person. This obligation includes disclosing any conflicts of interest, resolving them in the client's favor, and avoiding the use of the client's assets for personal benefit. Fiduciaries prioritize their clients' interests above their own.
2. Dual Registration Challenge: The article highlights a common challenge in the industry where financial advisors may be registered both as brokers and investment advisers. This dual registration allows them to operate as fiduciaries when creating financial plans but switch to a lower regulatory standard, called Best Interest, when selling financial products. This practice enables them to maintain revenue from both fee-based programs and product sales without always acting in the best interests of clients.
3. Lack of Affirmative Disclosure: The article emphasizes that advisors, when switching between fiduciary and non-fiduciary roles, are not required to affirmatively inform clients of the change in regulatory standards. This lack of disclosure can potentially lead to conflicts of interest and may not align with the best interests of the clients.
4. Importance of Identifying Fiduciary Advisors: Recognizing whether a financial advisor is a fiduciary is crucial during the selection process. Non-fiduciary advisors may make decisions that prioritize their own interests, such as earning higher commissions or bonuses.
5. Methods to Find Fiduciary Financial Advisors: The article suggests several methods to identify fiduciary financial advisors, including seeking recommendations from trusted friends, family, or colleagues. Additionally, it recommends using online sources like NAPFA.org (National Association of Personal Financial Advisors) and the SEC (U.S. Securities and Exchange Commission) Adviser Database.
6. Online Sources for Verification:
- NAPFA.org provides a database of financial advisors with a fee-only structure who are fiduciaries. The fee-only structure ensures that advisors are compensated solely by client fees, reducing potential conflicts of interest.
- The SEC's adviser search tool allows individuals to research advisory firms. Registered Investment Advisors (RIAs) are fiduciaries, and their Form ADV filing on the SEC website outlines their services, compensation methods, and fiduciary responsibilities.
7. Modera Financial Planners: The article introduces Modera Financial Planners as a fee-only, independently-owned financial planning firm that proudly acts as a fiduciary for its clients. The firm's commitment to a fee-only structure and fiduciary responsibility underscores its dedication to putting clients' interests first.
In conclusion, understanding the fiduciary status of a financial advisor is paramount for making informed decisions about your financial well-being. Utilizing recommended methods and online sources can help identify fiduciary advisors who prioritize clients' best interests.
