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Many different people refer to themselves as financial advisors, which can make it difficult to tell who is genuinely trying to do what’s best for you and who might be selling products or services that mostly enrich themselves.
Finding a fiduciary financial advisor to work with can help ensure you’re getting the best advice for you and your family. Here’s what to know about fiduciary financial advisors.
What is a fiduciary?
A fiduciary is someone who is required to put someone else’s interests before their own. While the term is often used in the context of a financial advisor, there are other professions that also require someone to act as a fiduciary, such as doctors, lawyers, real estate agents and more.
Fiduciary comes from the Latin word “fidere,” which means “to trust.” When you work with a fiduciary, you trust that they’ll put your interests first.
Fiduciary financial advisor: What does it mean?
A fiduciary financial advisor is legally required to put their clients’ interests ahead of their own or their employer’s. There are many people who call themselves financial advisors, but they aren’t all fiduciaries.
For example, a financial advisor who isn’t a fiduciary may sell you an investment product, such as a mutual fund or annuity, that they earn a commission on, rather than one that is the best option for you. A fiduciary is required to select the best products for you, regardless of how it impacts them or their firm. They also must disclose any conflicts of interest.
Fiduciary financial advisors are often compensated using a fee-only structure, which means they don’t earn commissions on the products they sell to you. This compensation structure helps create the right incentives for an advisor to give clients the best advice.
How to know if your financial advisor is a fiduciary
- Ask them. The easiest way to know if your financial advisor is a fiduciary is to ask them directly. Non-fiduciary advisors may offer explanations of how they still look out for your best interests, but if they aren’t a fiduciary, they aren’t legally required to.
- Check their credentials. You can also pay attention to your advisors’ credentials. Professional designations such as the Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) programs require those that complete their programs to act as fiduciaries for clients.
- Look them up. You can also use the Financial Industry Regulatory Authority’s (FINRA) BrokerCheck database to see if someone is registered as an investment advisor with the SEC.
Where to find a fiduciary financial advisor
If you’re interested in finding a fiduciary financial advisor in your area, there are online databases you can use in your search. You can find a CFP to work with through the organization’s website, or you can find a fiduciary financial advisor through The National Association of Personal Financial Advisors (NAPFA).
Bottom line
Many people find it useful to work with a financial advisor throughout their life to help them navigate their financial journey. Fiduciary financial advisors are legally required to put their clients’ interests before their own or their firms’. Just because someone calls themselves a financial advisor doesn’t mean they’re a fiduciary. Check your advisor’s credentials or ask them directly whether they’re held to a fiduciary standard.
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