What is a fiduciary financial advisor?
Find out what a fiduciary financial advisor can do for you and why these financial planners or investment professionals must act in your best interests and prioritize your economic well-being over their personal gain.
Summary
A fiduciary financial advisor is a financial planner or investment professional.
Fiduciaries are legally obliged to act in their client's best interests.
They are bound by fiduciary duties of care and loyalty.
Unbiased only matches you with SEC-regulated fiduciary financial advisors.
What is a fiduciary?
A fiduciary is a person, or sometimes an entity, committed to acting in the best interests of another party. They demonstrate a high standard of loyalty, trust, and care and are legally accountable for carrying out their expected tasks.
In a financial context, this legal and ethical obligation requires prioritizing the beneficiary's well-being and making the best financial decisions for them without a personal agenda.
This means a fiduciary financial advisor should avoid conflicts of interest and ensure transparent and prudent decision-making.
What is a fiduciary duty?
Fiduciary duty refers to the ethical and legal obligation that requires fiduciaries (individuals or entities) to act in the best interests of those they serve.
This means avoiding conflicts of interest, exercising diligence, and ensuring responsible and transparent decision-making to safeguard the financial well-being of the clients they represent.
What is a fiduciary financial advisor?
Fiduciary financial advisors assume a critical role in managing clients' economic well-being. They must prioritize their client's best interests above all else.
A fiduciary financial advisor is bound to act with unwavering loyalty and care, ensuring that every recommendation and decision aligns with their client's long-term financial goals. They go beyond the role of mere compliance with regulations and strive to create a relationship built on trust and openness.
By emphasizing ethical conduct and client-centric practices, these advisors aim to build a solid foundation of trust and reliability. This means advisors can assure clients their financial advice is dedicated to optimizing their clients' economic well-being while navigating the complexities of the financial landscape on their behalf.
Unbiased only works with fiduciary financial advisors who are legally obligated to maintain excellent standards in personalized financial care. Get matched with an SEC-regulated financial advisor now.
What does a fiduciary financial advisor do?
A fiduciary financial advisor is pivotal in helping individuals manage their financial affairs with trust and confidence. Below are some of their roles per their fiduciary duty:
Providing personal, client-centric guidance.
Tailoring financial strategies with specific goals and circumstances.
Offering comprehensive financial planning, including investment management, retirement planning, and estate planning.
Navigating complex economic landscapes on their client's behalf.
Providing expertise in risk management and wealth enhancement and preservation.
Fostering transparent communication and acting with utmost integrity.
Empowering clients to make informed decisions.
Are all financial advisors fiduciaries?
No, not all financial advisors are fiduciaries.
Some advisors operate under a suitability standard, meaning they must recommend products suitable for clients' best interests. On the other hand, fiduciary financial advisors are held to a higher standard, requiring them to prioritize the client's best interests over their own.
Fiduciary financial advisors are typically Registered Investment Advisors (RIAs). They are enlisted with and regulated by the Securities and Exchange Commission (SEC).
What are the different types of fiduciary financial relationships?
Not every fiduciary is a financial advisor, although they manage their client's economic well-being.
As such, many different types of fiduciary financial relationships exist. Below are four of the most common types:
Financial advisors & clients
Financial advisors and clients form a fiduciary relationship where advisors are legally obligated to prioritize their client's best interests. This includes providing transparent and prudent financial advice, managing investments, and ensuring the chosen strategies align with the client's long-term goals.
Guardians & wards
In legal guardianship, a fiduciary relationship exists between guardians and wards, i.e., minors or individuals unable to make complex decisions. Guardians must act in the ward's best interests, overseeing their welfare, finances, and overall well-being.
Boards & shareholders
Within corporations, a fiduciary relationship exists between boards of directors and shareholders. Boards must make decisions that benefit the shareholders while ensuring transparency, responsible management, and strategic planning to maximize shareholder value.
Lawyers & clients
Lawyers and clients form a fiduciary relationship where attorneys are legally bound to act in the best interests of their clients. This involves providing competent legal advice, maintaining confidentiality, and avoiding conflicts of interest while representing and advocating for their client.
How much does a fiduciary financial advisor cost?
Fiduciary financial advisors may charge fees based on assets under management (AUM), hourly rates, or flat fees. Understanding their fee structure is crucial for transparency and managing costs effectively.
Percentage of AUM: This fee is typical for wealth management and involves a percentage of the client's total investment portfolio.
Hourly rates: Some fiduciary financial advisors charge clients based on the time spent on financial planning or investment advice.
Flat fees: Advisors may charge a fixed fee for specific services, such as developing a financial plan.
Potential conflicts of interest: Investigate if the advisor receives commissions or has potential conflicts of interest.
Services offered: Different advisors provide various services. Clarify whether the advisor offers comprehensive financial planning, investment management, or specialized services in specific areas.
Is a fiduciary financial advisor worth it?
Not all individuals or scenarios require the services of a fiduciary financial advisor, so the answer is not a straightforward yes or no.
The following is a scenario where it would be beneficial to seek an advisor's services:
When the individual has a complex financial situation.
They seek long-term financial planning.
The individual requires a transparent and trustworthy advisor.
How to find a fiduciary financial advisor
Here are five things to know when finding a fiduciary financial advisor:
Fiduciary duty: Ensure the advisor is a fiduciary, legally obligated to prioritize your interests above their own.
Credentials and qualifications: To gauge their expertise, look for relevant certifications, such as Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA).
Communication style: Choose an advisor with a communication style that suits your preferences.
Experience: Assess their expertise in managing portfolios or addressing financial situations similar to yours.
Client references: Request and review references from current or past clients.
You can also check FINRA's BrokerCheck database to verify your advisor is a fiduciary.
Seek expert financial advice.
Fiduciary financial advisors are legally obligated to be transparent and put their client's needs before their own – not just offer suitable investment options. These financial professionals are held to a high standard and should have the relevant credentials and certifications and be regulated to ensure they act correctly.
For expert financial advice, let Unbiased match you with a financial advisor who understands your unique situation and financial goals and will help you achieve them.
Writers
Our team of writers, who have decades of experience writing about personal finance, including investing and retirement, are here to help you find out what you must know about life’s biggest financial decisions.