In my last blog post, I provided some basic information about the term “fiduciary” and discussed some of a fiduciary’s main obligations to their clients (if you haven’t read that post, I suggest visiting it briefly to gain some background information about this term). At its core, the word fiduciary is intrinsically linked to trust. Fiduciaries are in a trust relationship with those who stand to benefit from their advice (aka the “beneficiary”).

Although “fiduciary” is a term that can apply across industries and professions, it is commonly associated with financial advisors. In this post, I will apply the concept of fiduciary and fiduciary duties specifically to the field of financial advice.

What is a Fiduciary Financial Advisor?

Any financial advisor could claim to be a fiduciary, but what does that mean? And how can you, as an individual investor, spot the difference between true fiduciary financial advisors and those who do the bare minimum to make this claim.

Essentially, a fiduciary financial advisor is someone who puts the needs of their clients first, always acts in their best interests, and avoids conflicts of interest. A fiduciary financial advisor will genuinely care about their clients and their success. In practice, that means getting to know the client at a deep level—asking good questions, understanding their unique situation, and developing/maintaining a plan that fits their circumstances. It also means respecting their client’s privacy, disclosing any and all relevant information, and always acting above board and with transparency.

A fiduciary financial advisor will also recognize their personal limitations. If, for example, they are not experienced in tax planning, they should probably not attempt to engage in this type of planning with their client. Instead, the better choice could be connecting the client with another trustworthy financial advisor who does specialize in tax planning.

Ensuring a Financial Advisor is a True Fiduciary

The term “fiduciary” is quite broad, which means it can be adopted by many financial advisors or brokers, even if they are not truly committed to upholding fiduciary standards. The advisor might simply claim they thought they were acting in their client’s best interests, even when they were not. For example, if a financial advisor insists on only selling a few proprietary products to their clients, they are not a true fiduciary. Rather, they are emphasizing sales and are focused on selling a limited number of products on behalf of their organization.

It can be tough to determine if the person across the table is a true, committed fiduciary financial advisor or more of a salesperson masquerading as a fiduciary. However, there are some red flags that could indicate one or the other:

  • A lack of questions during your intake meeting (a true fiduciary will ask dozens of questions to develop a deep understanding of YOU and your situation)
  • Failing to listen and/or talking over you
  • Insisting on certain products (rather than providing you with options)
  • Including unusual or hidden fees
  • Having clear conflicts of interest (such as sales incentives to sell a particular product)
  • Seeming indifferent or not caring about you, as a person

It’s important to do your due diligence when it comes to vetting a new financial advisor. To determine if they are truly a fiduciary, do your research, conduct interviews with them, read reviews about their firm, and have a lawyer look over their proposed contract. It’s also important to listen to your gut. If you get the feeling that a financial advisor doesn’t care much about you and your situation, they probably don’t. I suggest seeking someone who genuinely cares and will work hard to put your best interests first.

True fiduciary financial advisors exist! We’re not always flashy and do not necessarily promote marketing, so you may have to do a little digging to find us, but the search is worth it.

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