A fiduciary financial advisor puts your best interests first, limits conflicts of interest, and avoids them when possible.
A fiduciary financial advisor limits their conflicts of interest and is required to disclose any potential conflicts of interest. A traditional financial advisor is not incentivized to limit or disclose potential conflicts of interest.
A fiduciary financial advisor must act in your best interest when offering financial advice. A traditional financial advisor is not required to act in your best interest.
A fiduciary financial advisor is obligated to find terms and prices that are best for their clients. A traditional financial advisor may have incentives to earn commissions or sell their own products.
A fiduciary financial advisor offers transparency in providing relevant information and facts to plan your future and manage investments. A traditional financial advisor is only required to make sure investment recommendations are suitable.
A fiduciary financial advisor manages your financial situation by putting your best interests first.
A fiduciary financial advisor acts with prudence, with the skill, care, diligence, and good judgment of a professional.
A fiduciary financial advisor will not mislead you and provides conspicuous, full, and fair disclosure of all essential facts.
When possible, a fiduciary financial advisor avoids conflicts of interest. Otherwise, they must fully disclose conflicts of interest and manage them in your favor.
Here are some questions to help determine if a financial advisor serves in your best interest.
Correct: Yes. Follow-up by asking if they will sign a fiduciary oath.
Incorrect: No. Follow-up by asking why they don’t serve clients as a fiduciary.
Correct: Yes.
Incorrect: No. Follow-up by asking for them to clarify when they are a fiduciary.
Correct: Directly from clients or fee-only.
Incorrect: A complicated fee structure should serve as a red flag. An advisor earning money from commissions may have additional conflicts of interest.
Correct: Yes.
Incorrect: No.
A financial advisor can be held to one of two standards: fiduciary or suitability.
A financial advisor held to the fiduciary standard is required to put your interests ahead of their own interests.
Not all financial advisors serve clients under this standard.
A financial advisor held to the suitability standard is not required to put your interests ahead of their own interests. To meet suitability requirements, a financial advisor must “check the boxes” for areas making up an investor’s profile, such as:
A financial advisor must recommend one of two investment options to a client. The two investment options are almost identical and considered suitable investments for the client’s needs. One has a reasonably low-cost while the other charges a higher fee and pays a commission to the financial advisor.
The fiduciary financial advisor would choose the less expensive option. The traditional financial advisor following the suitability standard has more incentive to choose the higher-fee, commission-based investment.
The CERTIFIED FINANCIAL PLANNER™ designation is considered the gold standard for financial planning advice. A CERTIFIED FINANCIAL PLANNER™ is held to a higher standard than other financial advisors.
A CERTIFIED FINANCIAL PLANNER™ is required to serve as a “fiduciary at all times” when providing financial advice.
A CERTIFIED FINANCIAL PLANNER™ that works for an independent fee-only Registered Investment Advisor limits conflicts of interest in providing advice.
However, most CFP® Professionals are brokers, meaning they collect commissions and sell products, creating additional conflicts of interest.
While a CERTIFIED FINANCIAL PLANNER™ is required to serve as a fiduciary, consider the importance of limiting additional conflicts of interest when searching for a fiduciary financial planner.
A robo-advisor is an online financial advisor that provides automated investment advice with little human interaction. Does a robo-advisor serve clients as a fiduciary?
Many robo-advisors are registered investment advisors, which suggests they have a fiduciary duty to clients. As a registered investment advisor, a robo-advisor is required to act in their clients’ best interests.
However, a robo-advisor is unable to understand the entire situation of an investor. Therefore, a robo-advisor only offers advice on a limited scope.
From an investment standpoint, a robo-advisor can serve as a fiduciary with a limited scope. A robo-advisor cannot offer guidance that a human, a fiduciary financial planner, can provide from a planning standpoint.
What is a CERTIFIED FINANCIAL PLANNER™?
What Is a Fee-Only Financial Advisor?
Financial Standards and Questions to Ask Your Financial Advisor
NAPFA: Fiduciary 101
Fee-Only Network: Is My Financial Advisor a Fiduciary
CFP Board: The History of CFP Board’s Fiduciary Standard
FINRA: Suitability Rules
We are a fee-only, independently-owned financial planning firm that acts as a fiduciary for our clients. We put our customers’ interests first 100% of the time.