When it comes to your finances, you deserve the best advice possible that puts your interests ahead of anything else. It’s your money after all, right? This should be a given in the world of financial advice, but you may be surprised to learn that it just isn’t so.
In an industry with so many options and different ways to work with financial professionals, things can get pretty confusing for most consumers. When it comes to handling your own finances, you either (1) do not have the immediate knowledge to simply do things on your own or (2) you are too busy to implement what you know you need to, so you’d rather hire a professional to do it for you.
In both cases above, the best option is to work with a financial advisor to help you manage your finances, provide investment advice, and engage with you in comprehensive financial planning that may cover everything (and more) from cash flow planning, tax planning, estate planning, insurance planning, college planning, retirement planning, debt management, investment management, etc.
You will be entrusting your hard-earned money to someone else. That is not an easy thing to do, especially if you cannot decipher if the professional that you are working with is actually acting in your best interest.
Well, there is any easy way to solve that problem. There is someone out there in the financial planning and advisory world that will, first and foremost, always put your interests ahead of their own—and that person is a Fiduciary Financial Advisor.
What Is A Fiduciary?
In simple terms, a fiduciary is someone that acts in the best interest of another. Instead of putting their own interests first, a fiduciary will put the other person’s interests in front of their own. Within the context of financial advice, a fiduciary financial advisor will only give advice or recommendations to a client if it is in the complete and total best interest of the client—at all times.
Another way to think about it is from the perspective of conflicts of interests. A fiduciary financial advisor will never give a recommendation to a client based on how much compensation they will receive. That is clearly not putting the client’s interest ahead of their own.
Example Of Fiduciary vs. Non-Fiduciary
To provide applicable context of how working with a fiduciary may look, consider the following scenario. Imagine that you’ve been a great saver and are at a point where you now have excess cash you are unsure what to do with.
If you were to seek financial advice from someone that is a non-fiduciary financial advisor, they may suggest that you take that excess cash and buy a mutual fund. When you purchase that mutual fund, you will not pay the non-fiduciary financial advisor directly, but they will be compensated from the mutual fund company in the form of commissions on the sale. Buying a mutual fund is not a bad thing, however, in this case, the mutual fund ended up having high fees and poor performance. In addition, this advisor did not ask the right questions to find out that you actually needed that money in three years for a down payment toward a new home. Because the non-fiduciary financial advisor was only thinking about the up-front commissions that he/she received, your interests were not taken into consideration.
On the other hand, in this same scenario of excess cash, let’s see what the fiduciary financial advisor may recommend to you. They may ask some more specific questions as to certain goals you may have or what ideas you have for that excess cash. Instead of recommending a mutual fund, the fiduciary financial advisor finds out that it is actually in your best interest to keep the money in cash in a high-yielding three-year CD account, so that you can use it for the down payment on your dream home. In this case, the fiduciary financial advisor is not receiving any compensation for this recommendation, but he/she does it because it is in the best interest of their client.
Why Is It Important?
Working with a fiduciary is important for many reasons. As explained above, a fiduciary acts in the best interest of their clients. While this should be expected when working with any type of professional, this is just not the case in financial services. Under current laws, your financial advisor or broker-dealer “can receive monetary rewards and other perks for recommending certain investment products, even if those products aren’t in your best interest.” (1) Isn’t that scary to think about, especially when considering what we are talking about here—your hard-earned life savings and financial goals?
In other industries, the fiduciary standard is never a question. For attorneys, they cannot take money from the opposing counsel to give you the wrong legal advice. For doctors and nurses, they cannot recommend drugs to patients while also getting paid by those same drug companies. The financial services industry as a whole is not yet enmeshed into a fiduciary standard, but we are certainly making strides in the right direction. For now, if you find someone that holds themself out to be a fiduciary financial advisor, you can be confident that you are in good hands.
How Do I Find A Fiduciary Financial Advisor?
An easy way to make sure that you are working with a fiduciary financial advisor is to request to see their Form ADV Part II. In addition, you can also ask the advisor if they have signed a Fiduciary Oath.
Next Steps
When you hand over your hard-earned money to an advisor to help you achieve your goals, you need the guarantee that your interests will be put first. In order to make sure that happens, you should always work with a fiduciary financial advisor. At Roberts CPA Group and Lifetime Wealth Design, we always work with our clients in that capacity. To learn more and engage with a fiduciary, do not hesitate to send me an email at kevin@roberts-cpa.com or call my office at (502) 426-0000.
About Kevin
Kevin Roberts is a CPA and CFP® specializing in providing virtual CFO services to individuals, families, small businesses, and professionals in the medical, professional service, and restaurant industries. He has more than 20 years of experience in accounting and taxes, and more than seven years in the financial services industry. Regardless of the services he provides, Kevin strives to offer clients confidence knowing that their financial aspects are being addressed and monitored by professional and competent individuals. Based in Louisville, he works with individuals, families, and businesses throughout Kentucky. Learn more by connecting with Kevin on LinkedIn or emailing kevin@roberts-cpa.com.
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