FIDUCIARY FINANCIAL ADVISOR: Definition, Importance, How to Find One & Best Advisors

A fiduciary is a legal term that refers to persons or organizations that agree to honestly and morally act on behalf of another person or entity. A fiduciary financial advisor is obligated to work in the best interest of their clients, and if they fail to, they could face legal repercussions. Financial advisors with a fiduciary duty to their clients manage their assets with their client’s best interests in mind.

Who is a Fiduciary Financial Advisor?

A fiduciary financial advisor is a professional who is legally required to offer financial advice and product recommendations that are in their client’s best interests. Working as a fiduciary financial advisor means adhering to a duty of loyalty and care. You must put your client’s interests above your own, avoid conflicts of interest, disclose potential matches, and execute trades under the best execution standard.

Typically, fiduciary financial advisors work for registered investment advisors (RIAs) and can also be certified financial planners (CFPs). Also, they are held to a higher standard of care than non-fiduciary advisors, who only need to meet the suitability standard, which does not require putting the client’s interests above their own.

It is also important to note that not all financial advisors are fiduciaries, as some work for brokerage firms and are required to follow the suitability standard, which means their advice and product recommendations must only be suitable for clients but may have high fees or offer the advisor a hefty commission.

Why Use a Fiduciary Financial Advisor?

Using a fiduciary financial advisor is a good move when managing your finances. When working with one, you are assured that the advisor will always protect your best interests, as he is obligated to.

Importance of Using a Fiduciary Financial Advisor

Using a fiduciary financial advisor can provide several benefits, including the assurance that the advisor will act in your best interest rather than your own financial benefit. Fiduciary advisors must adhere to a higher standard of care and disclose any potential conflicts of interest when recommending investments.

Here are some reasons to consider using a fiduciary financial advisor:

#1. Acting in Your Best Interest

A fiduciary advisor must prioritize your best interests over your own. This means they provide unbiased advice and recommend investment strategies that will benefit you, even if it means less profit or commission for them.

#2. Avoiding Conflicts of Interest

Fiduciary advisors must disclose potential conflicts of interest and avoid making investment decisions that could compromise their impartiality. This guarantees that factors that might benefit the advisor at your expense do not influence the advice you receive.

#3. Higher Standard of Care

A higher standard of care, which includes the responsibility of loyalty and respect, applies to fiduciary advisors. This ensures that they provide accurate and thorough investment advice, striving for the best execution of trades and minimizing costs.

#4. More Transparent Fee Structures

Most fiduciary advisors are fee-only or fee-based, meaning their compensation is not tied to commissions on specific investment products. This can help ensure that the advisor’s potential financial gain does not influence your advice.

#5. Greater Peace of Mind

Knowing that your financial advisor is acting in your best interest and adhering to a higher standard of care can provide you with additional peace of mind when making critical financial decisions.

What Are the Five Fiduciary Duties?

Fiduciary duty is the legal obligation of a person in a position of trust to act in the best interest of the principal or beneficiary. The fiduciary must work to benefit the principal and bring about a satisfactory result or capable stewardship of their assets.

The duties of fiduciaries include the following:

#1. Duty of Care

Before making a choice that could impact your beneficiary, you, as the fiduciary, are required by the duty of care to exercise due diligence and obtain complete information. When making choices and taking any action on behalf of the company, exercise reasonable caution.

#2. Duty of Confidentiality

The fiduciary has a duty of confidentiality to maintain the privacy of all information relating to the beneficiary and refrain from using it for their own benefit.

#3. Duty of Loyalty

This requirement calls for you to work for your beneficiary’s benefit rather than your own. All professional obligations should be undertaken without personal animosity, and any such hostilities should be fully disclosed.

#4. Duty of Obedience

A nonprofit board member’s obligation to act following the organization’s mission and bylaws is a requirement of the duty of obedience. Board members must ensure that the organization fulfills its mission and doesn’t engage in any unauthorized activities.

#5. Duty of Accounting

It is the fiduciaries’ responsibility to oversee their clients’ wealth, acting on their behalf and in their best interests. It involves managing the wealth of their clients and working on their behalf.

Qualities of a Fiduciary

When looking to hire a fiduciary financial advisor, there are certain qualities you should look out for. To establish a fiduciary relationship with a person, they should be trustworthy, represent you well, and be credible, knowledgeable, and understanding.

#1. Trustworthy

The first quality you should look for is trustworthiness. You should know that a fiduciary is someone you can trust before establishing a relationship with them. Research complaints and the reputation of the advisor before hiring them.

#2. Represents Your Best Interests

The fiduciary’s ability to offer adequate representation is another quality to consider. A fiduciary must uphold your interests and represent you as favorably as possible. That is the foundation of fiduciary duty.

#3. Credibility

Consideration should also be given to credibility. A professional certification from the fiduciary you are working with is something you want. Ensure the fiduciary you are working with is certified and licensed to assist you with your financial needs and decisions, for instance, if they are stockbrokers.

#4. Knowledgeable

Along with someone who represents your best interests and is credible in their field, you will also want to work with someone knowledgeable of the current trends in the marketplace. This helps ensure they make recommendations that will positively impact your financial future.

#5. Understanding

You will also want someone who is understanding and empathetic. It is essential to work with a fiduciary who understands life’s challenges and how they could affect you and your family. Life often takes unexpected turns: a loved one could pass away, you could lose a job, or you could find yourself in a car accident.

What Makes Someone a Fiduciary?

A fiduciary is someone who looks after another person’s assets or money. When someone appoints you as a fiduciary, you must legally manage their assets in their best interests, not your own. A fiduciary does not break the trust of the beneficiary.

Can a Fiduciary Invest Your Money?

You’ll be relieved that a fiduciary can invest on your behalf in these situations. They will consider your risk tolerance, objectives, and preferences before taking any action, but they might take some guesswork out of the equation for you.

Fiduciary Financial Advisor Fees

To manage a client’s portfolio, a fiduciary financial advisor may receive fixed fees, commissions, or a percentage based on assets under management (AUM). A fiduciary financial advisor typically charges fees equivalent to 1% of the assets they manage. However, the fee decreases as your investment increases. Most importantly, a fiduciary financial advisor should discuss their fees at the start of the agreement.

How to Find a Fiduciary Financial Advisor

To find a fiduciary financial advisor, knowing the different types of financial advisors and understanding what fiduciary duty means is essential. When looking for a financial advisor, it’s crucial to do research, inquire about their credentials and fee schedule, and confirm whether they are subject to fiduciary duty.

To find a fiduciary financial advisor, there are several steps you can take:

Search online: Conduct a Google search for “fee-only fiduciary financial advisor” to narrow your search. This will return a list of potential advisors in your area.
Use directories: Use online directories such as the Fee-Only Network, NAPFA, and XY Planning Network to find fiduciary advisors. These directories vet advisors to ensure they meet strict criteria before sharing their information with investors.
Through recommendations: Asking friends, family, and co-workers for referrals is also a good way to find to a fiduciary financial advisor. Personal referrals can be one of the most effective ways to find an advisor, but it’s essential to research the planner and firm before engaging.
Research: You can also find a fiduciary financial advisor by checking on the securities and exchange commission’s online search to research registered investment advisory firms or advisors by name.

It can be worth it to find a virtual fiduciary financial advisor if you can’t find an advisor you like in your area. Some offer videoconferencing, which makes it easier to connect virtually.

Is a Fiduciary Financial Advisor Worth It?

A financial advisor can offer advice on wealth-building investments and retirement planning.

Before deciding whether or not hiring a fiduciary financial advisor is worth it, you should ask yourself a few questions. How are your finances right now? What monetary goals do you hope to achieve? What other assistance do you require? Working with a financial advisor is usually worth the time and money, depending on your financial situation.

Working with a fiduciary advisor might be worth it if you’re finding it difficult to make financial decisions independently or are still determining where to begin with your economic journey. However, you might not gain much from working with a financial advisor if you’re already on a sound financial path, are not looking into the best products for your needs, already have a retirement plan, or don’t have a sizable debt load to pay off.

When finding a fiduciary financial advisor, it is worth choosing one who shares your values and philosophy about money. For instance, if you aspire to be an ethical investor, you should choose a financial advisor who is knowledgeable about ethical investing and can customize your portfolio to meet your needs. Additionally, you ought to work with a financial advisor who won’t pressure you to achieve your financial objectives more quickly than you feel ready.

Ultimately, your particular situation and the fiduciary financial advisor you decide to work with will determine whether or not a financial advisor is worth your money.

Best Fiduciary Financial Advisor

The best financial advisors provide investment management and financial planning at a reasonable cost. The following services can help you find the best financial advisor; some are only available online.

ZOE financial
Facet
Harness wealth
Emperor
Betterment Premium
Wealthramp
Vanguard personal advisor services

What Are the Top Ten Fiduciary Companies?

Do you need assistance managing your finances and investments? It may be time to begin consulting a financial advisor. The following are the top 10 Fiduciary companies;

Fisher Investments
CAPTRUST
Mercer Global Advisors, Inc.
Madison Investment Advisors, LLC
Summit Rock Advisors, LP
Buckingham Strategic Wealth, LLC
Moneta Group Investment Advisors, LLC
Fort Washington Investment Advisors, Inc.
Beacon Pointe Advisors, LLC
NFP Retirement, Inc.

Which is Better, Broker or Fiduciary?

Understanding the difference between hiring a broker and employing a fiduciary is essential to ensuring the scope and quality of services provided to the plan. This also helps you know whether a broker or fiduciary is better. Below are a few distinctions to help you know which is better.

While fiduciary advisors are held to a fiduciary standard of care, which requires them to act in the investor’s best interest, brokers are held to a suitability standard. Compared to the suitability standard, this standard is stricter.
Conflicts of interest can arise when brokers receive commissions on the investment products they recommend to clients. Since only fee-based compensation is permitted, conflicts of interest regarding investment advice and other decisions made at the plan level are eliminated. Conflicts of interest regarding investment advice and other plan-level choices are eliminated.
The level of service can differ because brokers and fiduciaries are subject to different legal requirements. Brokers might not be as motivated to keep track of fees and performance as a fiduciary is.
When advising on a retirement plan, fiduciary advisors are required by law to uphold the highest standards of care. They also assume some of the plan sponsor’s liability and carry out their due diligence to ensure that all aspects of the plan comply with ERISA and are in the best interests of the beneficiaries and plan participants.