Fiduciary vs. Financial Advisor – Who Should I Consult?
Selecting a professional to help you plan your financial future is an important decision, whether you are preparing for your retirement, looking to invest or needing guidance on another long-term matter. If you’re looking for advice now, you have likely heard the terms “fiduciary” and “financial advisor”. And if you’re wondering how these two differ, you’re not alone.
In legal terms, a fiduciary is a person or organization that has taken on the commitment of acting on behalf of another person or entity with integrity and honesty. Examples of fiduciaries are attorneys, bankers, public companies and of course fiduciary financial advisors.
Fiduciary financial advisors are committed to serving clients under fiduciary duty. That is, they make all their recommendations with your best interest in mind, not their own gain. Non-fiduciary advisors, on the other hand, may recommend products or investments for which they could receive a commission or other type of profit.
What are financial advisors? What do they do?
Financial advisors help you design and stick to long-term strategies for two key goals: building wealth and managing risk. There are several types of financial advisors you may seek based on your needs, three of the most common being:
Certified financial planners (CFPs)
With the most widely known certification for financial planning, CFPs are fluent in all aspects of financial planning. They are highly trained, undergoing between 4,000 and 6,000 hours of training before earning their certification and continuing their education afterwards.
Chartered financial consultants (ChFCs)
ChFCs are specifically trained to advise on advanced financial planning services, like investing and insurance planning.
Retirement income professionals (RICPs)
As the name suggests, RICPs specialize in retirement income planning, helping you ensure all the money you have saved for retirement will last the rest of your life.
How are fiduciary financial advisors different?
Fiduciary advisors are typically “fee-only” advisors, which means they only receive compensation from the fees the clients pay, not from any kick-backs or commissions from the movement they make with your money.
When you begin working with a financial advisor, you are basically giving them open access to your money and investments. And advisors often have discretionary control of your assets, meaning they can make decisions without your approval. This is why an advisor’s identification as a fiduciary is important – you should be able to trust that your advisor is making decisions on your behalf that are in your best interest.
Fiduciary financial advisors are worthy of this trust because they are committed to always making their recommendations to best serve you and your financial future, never their own. They will also disclose any conflicts of interest on potential investments or decisions.
Overall, fiduciary financial advisors are obligated by law to do the following:
Put clients’ best interest before their own.
Seek to avoid conflicts of interest / disclose any conflicts of interest to clients.
Never use a client’s assets to benefit themselves.
Act in good faith and provide all relevant, accurate and thorough information to clients.
How do I know if my advisor is a fiduciary?
The easiest way to find out if your advisor is a fiduciary is to simply ask them. If they don’t answer with a solid “yes” and/or they aren’t willing to put it in writing, this is a red flag. Fiduciary financial advisors typically advertise this status because they are proud to have earned it.
Be sure to research the firm you’re considering, and ask some follow-up questions if their fiduciary status is unclear, such as:
How are you compensated?
Is your firm independent?
Do you have a fiduciary obligation to your clients?
What percentage of compensation do you receive from commissions vs advice fees?
Stick with financial advisors you can trust.
You will find a variety of financial advisors, but not all of them are legally committed to putting your interests above their own. This is why it’s important to do your homework and choose a firm and advisor you can trust with the keys to your financial portfolio. Our founder Katie Kingsman recognized the need for this relationship of trust, leading her to launch Kingsman Wealth Management as a fiduciary financial planning service committed to design strategies serving our clients in Pensacola and remotely across the U.S.
Contact us today to start a conversation about your financial future!
