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What is a Fiduciary Financial Advisor? An Overview

Between fluctuating markets, changing personal circumstances and the complexities of managing investments, navigating your financial life can be challenging. Many people don't have the legal or financial know-how to manage their entire financial picture alone, and that's okay! When the difficulties of your financial situation become too much to handle, it can be helpful to seek out the help of a fiduciary financial advisor.

A fiduciary financial advisor is someone who is legally and ethically required to work in the best interests of their clients. Their responsibilities are similar, if not the same as, those of a financial advisor, however their status as a fiduciary means there are consequences if a fiduciary breaches their duty of acting in their clients’ best interest. The fiduciary rule ensures that financial advisors and their firms provide their clients with the same advice and expertise they would provide to themselves, including the best prices and terms as well as the relevant updates to keep clients informed about their assets.

A breach of fiduciary duty can include:

  • Making an exorbitant number of trades to make commissions (account churning)
  • Exchanging investments without permission
  • Using a client account to purchase stocks for oneself
  • Negligence
  • Not communicating conflicts of interest linked with investments
  • Misrepresentation, or making an untrue statement about a transaction

When financial advisors break their fiduciary duty, they can be subject to civil liability and professional disciplinary sanctions. This could involve a suspension from practice, or the advisor might be barred from the industry.

The fiduciary standard is the highest legal obligation that one can have to another person. Ideally, fiduciary practices make the professional worthy of clients' trust.

How Do I Find a Fiduciary Financial Advisor?

Before looking into possible fiduciary financial advisors, you need to determine what specific help you need and your ideal payment range that works with your financial situation. When you first meet, you’ll need to be able to sit down and explain your needs. Those needs will depend on your situation: children, debt, and taxes will all make your financial life more complex.

Are All Financial Advisors Considered Fiduciaries?

No, not all financial advisors are fiduciaries. The financial advisors who work for brokerage firms in particular aren’t typically fiduciaries. Fiduciary financial advisors typically work for Registered Investment Advisors, or RIAs. They can also be certified financial planners (CFPs), but you should always double-check with your advisor before working with them.

Can a Fiduciary Financial Advisor Benefit You?

It might be helpful to hire an advisor if:

  • You recently inherited money or assets
  • You want to begin investing
  • Your employer offers a 401(k) and you want to compare options
  • You need to re-manage your assets (like after a divorce)
  • You are considering starting or restructuring a small business
  • You are approaching retirement
  • You want long-term management advice for a house or other investment
  • You want to create a trust fund or begin estate planning
  • You need to help a close relative with their finances
  • You need a second opinion on your financial habits and investments
  • You want to create a college or medical fund for a dependent

Some services a fiduciary financial advisor might offer include:

  • Reviewing your current financial situation
  • Discussing future financial goals and mapping possible routes to those goals
  • Creating investment or retirement accounts on your behalf
  • Buying or selling investments on your behalf
  • Developing a plan to manage long-term expenses (ie college funds or retirement accounts)
  • Providing advice on financial obstacles or hardships
  • Assisting in estate planning
  • Determining the best life insurance

Many fiduciary financial advisors offer one-time of short-term consultations, while others specialize in full-time advising. Meet with several different advisors before deciding on an advisor to work with.

How Do I Know if I'm Working with a Fiduciary Financial Professional?

You can only know if you ask. In your first meeting with a potential advisor, be sure to clarify, firstly, if they are a fiduciary and, secondly, if they are always acting as a fiduciary. The biggest risk in advising is trusting the wrong advisor. Trust your gut about whether or not you think an advisor will work for you and be sure to find someone who is competent and ethical.

Consider asking these questions in a first meeting:

  • What are your credentials, licenses, and/or certifications?
  • How much experience do you have?
  • Are you a fiduciary? Can you describe when you are acting as a fiduciary and when you are not? Why are you not a fiduciary in some instances?
  • What is your fee structure?
  • Can you describe all the costs I will pay you and your firm?
  • What is your investment philosophy? This includes risk tolerance and investing style (ie value or growth oriented).
  • Is your portfolio adequately diversified?
  • Are you a CFP professional or CFA charterholder?
  • What are the most important aspects of investments and building, or maintaining, long-term wealth?
  • What role does insurance play in a financial plan?

Looking for a Fiduciary Financial Advisor?

Do you live in the Greater Houston area and want to work with a fiduciary financial advisor? Our team here at Totus Wealth Management is full of dedicated fiduciaries who can help you develop a financial strategy that helps you navigate complexities and pursue your goals. Reach out to learn more.

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