The importance of hiring a Fiduciary.

Trust is the biggest single issue when it comes to choosing a financial advisor.  How they are paid, levels of professionalism, educational backgrounds, experience, and sophisticated strategies, though important, pale in comparison to trustworthiness.  If you wouldn’t trust someone to watch your dog while you’re on vacation, you shouldn’t let them manage your money. There are unscrupulous actors in every profession and the financial services industry is most certainly no exception. So how can we increase our chances of finding a trustworthy advisor?

One key distinction to look for is whether the advisor works as a fiduciary. While the term may sound technical, the principle behind it is simple: fiduciary advisors are legally and ethically obligated to put your interests ahead of their own. In the world of financial planning, that can make all the difference. A fiduciary advisor must recommend strategies, products, and plans that are best for you, not just those that are suitable or profitable for them. Most of the time, they are compensated through charging transparent fees, so their pay is in no way linked to the financial products that they recommend. However, even if a fiduciary is paid through sales commissions, they must fully disclose what they are being paid and give an account of why the commissionable product is in the best interest of the client over anything else.

How do you know if an advisor is a fiduciary? Easiest way is to ask them and accept only an unequivocal “yes” as an answer. Watch out for complicated explanations or talking in circles, because no advisor wants to admit that they don’t have to put your interests first and some are dually registered, meaning that there are times when they must act as fiduciary and times when they don’t. As the old Russian proverb goes: “Trust but verify.” Registered Investment Advisors (RIAs) are a type of financial firm compensated by transparent fees, not sales commissions, and are held to the fiduciary standard of care.  Often those fees are a small percentage of the amount of assets managed, so as your investment grows so does the fee to the advisor, aligning your interests. Certified Financial Planner™ (CFP®) professionals also hold a designation that requires them to put their client’s interests first. Choosing an RIA like Firelands Wealth management with a CFP® advisor on the team, you can be assured they are fiduciaries.

Aren’t all advisors held to this level of accountability? Sadly, no. Registered representatives that sell investment products through a broker dealer or insurance salespeople are held to a standard of suitability. A product only needs to be suitable for you or “good enough.”  They can’t hurt your financial situation, but they don’t have to put your interests first.  If one product pays the highest commission, they can sell it to you over a better product if it’s reasonably suitable and this is a conflict of interest.

So most importantly, find a financial planner that you trust. An “advisor” that is only in town a few days to hold a seminar at a fancy restaurant to use high pressure sales tactics and make a quick commission is likely not what you are looking for. Financial planning should be a long-term, ongoing relationship to get the most out of it. By choosing a fiduciary advisor you’ll know that they are legally and ethically held to put your interest first.