Deciding you need someone to help manage your investments is a significant decision. You’re seeking aid to grow your assets and, likely, help you plan for retirement.
Unfortunately, identifying the best person to assist you can be difficult as you wade through the possibilities. In your research, you may identify financial advisors who label themselves as fiduciaries.
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Verifying your advisor has this designation may be the best thing you can do for your money.
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Simply put, a fiduciary is a person who is legally required to act in your best interest with your money. Given the compensation structure of most in the financial advisory field, this simple but powerful distinction is important.
A fiduciary is ethically bound to work for what’s in your best interest, not their commission. As you seek out an advisor, the best way to determine if the person is a fiduciary is to ask them.
Additionally, use the free FINRA Broker Check to learn the employment history, complaints, licensing information, and more. If there is a red flag, it may be best to look elsewhere.
According to Robert R. Johnson, PhD, CFA, CAIA, and professor of finance at the Heider College of Business at Creighton University, your advisor being a fiduciary is a must.
“If a potential financial advisor is not a fiduciary, look elsewhere. In fact, if a financial advisor isn’t a fiduciary, run away!” said Johnson.
He listed chartered financial analysts (CFAs) and chartered financial planners (CFPs) as being held to this fiduciary standard, and ones to consider when looking for investment management.
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On the other hand, financial advisors aren’t held to the same legal standard.
They’re not bad, per se, but there’s no ethical or legal standard to lead their clients to suitable investments that fit within their appetite for risk. Being a financial advisor can often be a mere job description or indicate they’ve passed a test or two.
“The suitability standard of care is lower than a fiduciary duty and requires only that the broker has a reasonable basis to recommend a course of action is suitable for the customer based upon a reasonable inquiry into the customer’s investment profile,” said Johnson.
