What is a Fiduciary Financial Advisor?
Updated on Nov 09 2018
Fiduciary financial advisors are legally and ethically required to put your best interest before their own. In the financial marketplace, fiduciary advisors are the best kind of advisors because they typically have fewer conflicts of interest and have a relationship of trust with their clients.
If you are searching for a financial advisor, a “fiduciary” advisor is an excellent choice. Here’s why: Fiduciary financial advisors have a relationship of trust with their clients and abide by fiduciary duty, meaning they have an ethical obligation to act solely in your best interest.
Paul Merriman, Founder, Author and Educator at The Merriman Financial Education Foundation discusses why he thinks fiduciary advisors help give you peace of mind:
“I think the biggest risk we have is trusting the wrong advisor. Finding a financial expert you can trust is huge. Make it a priority to find someone who is competent and ethical. A fiduciary advisor can provide valuable insights and an unbiased perspective.”
Learn more about fiduciary advisors and why they have helped change the financial marketplace for the good.
The Fiduciary Rule
The Department of Labor released the Fiduciary Rule in April of 2016, which forever changed finance. The rule ensures that financial advisors and their firms provide their clients the same advice and expertise they would themselves. Basically, act in their clients best interest instead of being motivated to promote specific investments by their own commissions or incentives.
Here are the top reasons why a fiduciary financial advisor is a good hire as your personal and expert financial advisor:
1. Fiduciary Advisors Seek the Best Prices and Terms
A fiduciary puts their client’s best interest first and also seeks the best prices and terms on investments. Advisors who are not fiduciaries may be motivated by company incentives and feel they need to push investments that give them the most return. A fiduciary is dedicated to what is best for their client instead and is less likely to charge unnecessary fees and out of pocket costs.
2. Fiduciaries Provide Relevant Facts and Education to Their Clients
Fiduciary financial advisors act in good faith and provide all relevant facts to their clients. They are also experts at making sure their clients are educated about specific investments or opportunities so they understand the financial investments and implications. Fiduciaries also do their best to ensure the advice they provide is accurate and thorough.
3. Fiduciaries Avoid Conflicts of Interest and are More Trustworthy
The fiduciary obligation eliminates conflict of interest concerns and makes a fiduciary’s advice more trustworthy. Fiduciaries are legally obligated to disclose any potential conflicts of interest to their clients. They also avoid using a client’s assets to benefit themselves.
Fiduciary duty is important for guiding the actions of the professionals who deal with clients’ money. For example, if the duty is violated, the client has an avenue to legal action. If a financial professional who isn’t a fiduciary has been knowingly selling you low-performing, high-fee investments, you don’t have the legal standing that you would have if the professional were a fiduciary.
Fiduciary Financial Advisors Are Motivated by Honesty
A breach of fiduciary duty occurs when a fiduciary fails to honor his or her obligation. This can happen if a fiduciary benefits from his or her recommendations, fails to provide proper guidance or acts in any way that’s not in your best interests.
Here are some examples of a breach of fiduciary duty:
- Account churning, or making an excessive number of trades to make commissions
- Making unauthorized trades
- Acting negligently
- Misrepresentation, or making a false statement about a security transaction
Legally, you are entitled to damages if your fiduciary violates the fiduciary duty as the fiduciaries can be held financially and civilly responsible for any actions they make that are not in your best interest.
Why It’s Important to Choose a Fiduciary Financial Advisor
Typically, financial professionals bound by fiduciary duty tend to be more transparent as they must thoroughly discuss their decisions with you, providing all relevant information and pertinent facts. This makes it easier to ensure you understand the decisions that are being made in regards to your assets and financial future.
It’s up to you to choose your financial advisor wisely. You will most likely be working with this person for many years and they can help you grow your nest egg to give you financial security and peace of mind. Think about it: when it comes to choosing someone to manage your money, you should find someone you can trust. This is why a fiduciary advisor is a good place to start your search for expert and unbiased financial help.
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