Do I Need a Fiduciary?

If you’re searching for a financial advisor, you may have come across the term fiduciary. In this article we’ll be covering what a fiduciary is, why you should hire a fiduciary as your financial advisor, and how to tell if your current financial advisor is a fiduciary.

What is a Fiduciary?

A fiduciary is a financial advisor who adheres to the fiduciary duty. You can think of this duty as the financial version of a doctor’s duty of care owed to their patients. Fiduciary duty simply means that your advisor must put your interests before their own. A non-fiduciary advisor only needs to make recommendations based on suitability, while a fiduciary makes recommendations based on what’s best for you and your financial goals.

This idea of “best” vs. “suitable” is important when it comes to your financial well being. An option can be suitable for your situation, but there may be something even better — a non-fiduciary advisor would not necessarily have to bring this to your attention. And what is suitable for you is determined by the prerequisites you lay out to your advisor. For example, if your budget is $10 and you want to buy at least 3 candy bars, a suitable option would be 3 candy bars for $10. But if there was another option of 5 candy bars for $8, that would be a better option because you’re getting more of what you want and saving money at the same time.

Why Does the Fiduciary Duty Matter?

Choosing a fiduciary financial advisor can give you the comfort of knowing that your financial professional must give you advice that is in your best interest. In addition, fiduciary advisors must disclose all relevant facts and avoid conflicts of interest when working with you. A non-fiduciary advisor can recommend investments that are not the “best” solution for you and ones that may enrich them instead. For example, your advisor may get commissions for selling certain (suitable) investments to you even when there are better options available. Most people prefer to work with a financial professional that puts the client’s needs before the advisor’s.

Do you know how much investors collectively lose every year due to high fees and commissions? $17 billion. That’s how much money is lost to investors either directly in the form of high fees or indirectly in the form of less than ideal investments through which their financial advisors earned commissions. That’s a lot of money investors are missing out on by not working with fiduciaries.

Is my Financial Advisor a Fiduciary?

There are three main ways to tell if your financial advisor is a fiduciary. First, is your financial advisor fee-only? This doesn’t guarantee that they will be a fiduciary, but it’s more likely for fiduciaries to be fee-only than fee-based or commission-only. Fee-only advisors are those whose services are directly paid for by you. Fee-based advisors make most of their earnings directly from their clients, but also may make commissions on the side, which can lead to a conflict of interests. And commission-only advisors make all of their earnings from selling financial products that pay commissions, which means your best interests may take a back seat.

Second, find out if your advisor is a member of any special financial organizations. Many of these organizations require their members to be fiduciaries, such as CERTIFIED FINANCIAL PLANNER™ practitioners (CFP®). These organizations take legal action against anyone who falsely claims to be a member, so if your advisor is advertising their membership to one, it’s usually a safe bet that they’re a fiduciary.

Finally, the best way to find out if your financial advisor is a fiduciary is to simply ask them. Fiduciaries should have no problem providing written proof that they are, in fact, fiduciaries. It’s illegal for someone who’s not a fiduciary to claim to be one.

Conclusion

Do you need a fiduciary? If you want your advisor to put your best interest before their own, then yes. Fiduciaries are bound by fiduciary duty, which means they recommend the best investments for your specific goals rather than investments which are merely suitable. They also help save you money through their fee-only practice which means you get a better bang for your buck. And if you’re unsure whether or not your advisor is a fiduciary, the easiest way to find out is to ask them directly.

Trinity Wealth Management

At Trinity Wealth Management, all of our financial advisors follow fiduciary duty in everything we do for our clients. If you’re looking for a fiduciary advisor, contact us today to learn more about how we can serve your best interests financially.

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The commentary on this website reflects the personal opinions, viewpoints and analyses of the Trinity Wealth Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Trinity Wealth Management, LLC or performance returns of any Trinity Wealth Management, LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Trinity Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.