By Jimmy Miller
When it comes to achieving your financial goals, you deserve to receive the advice and recommendations that will ultimately be in your sole best interest. What that means is that the advice you receive should, first and foremost, help you achieve your financial goals…above anything else.
What if I were to tell you that not all financial advisors are obligated to act in such a manner for their clients? It sounds outlandish, but that is the current reality of the financial services and the advisory landscape.
However, don’t dismiss the entire industry just yet. There are indeed some financial professionals out there that will always look after your best interest, and they are called fiduciary financial advisors. Read on to learn more about how you can find one for yourself!
What Is A Fiduciary?
In simple terms, a fiduciary is someone that acts in the best interest of another. Instead of putting their own interests first, a fiduciary will put the other person’s interests in front of their own. Within the context of financial advice, a fiduciary financial advisor will only give advice or recommendations to a client if it is in the complete and total best interest of the client, at all times.
Another way to think about it is from the perspective of conflicts of interests. A fiduciary financial advisor will never give a recommendation to a client based on how much compensation they will receive. That is clearly not putting the client’s interest ahead of their own.
Example Of Fiduciary vs. Non-Fiduciary
To provide applicable context of how working with a fiduciary may look, consider the following scenario. Imagine that you’ve been a great saver and are at a point where you now have excess cash you are unsure what to do with.
If you were to seek financial advice from someone that is a non-fiduciary financial advisor, they may suggest that you take that excess cash and buy a mutual fund. When you purchase that mutual fund, you will not pay the non-fiduciary financial advisor directly, but they will be compensated from the mutual fund company in the form of commissions on the sale. Buying a mutual fund is not a bad thing, however, in this case, the mutual fund ended up having high fees and poor performance. In addition, this advisor did not ask the right questions to find out that you actually needed that money in three years for a down payment toward a new home. Because the non-fiduciary financial advisor was only thinking about the up-front commissions that he/she received, your interests were not taken into consideration.
On the other hand, in this same scenario of excess cash, let’s see what the fiduciary financial advisor may recommend to you. They may ask some more specific questions as to certain goals you may have or what ideas you have for that excess cash. Instead of recommending a mutual fund, the fiduciary financial advisor finds out that it is actually in your best interest to keep the money in cash in a high-yielding three-year CD account, so that you can use it for the down payment on your dream home. In this case, the fiduciary financial advisor is not receiving any compensation for this recommendation, but he/she does it because it is in the best interest of their client.
Why Is It Important?
Working with a fiduciary is important for many reasons. As explained above, a fiduciary acts in the best interest of their clients. While this should be expected when working with any type of professional, this is just not the case in financial services. Under current laws, your financial advisor or broker-dealer “can receive monetary rewards and other perks for recommending certain investment products, even if those products aren’t in your best interest.” (1) Isn’t that scary to think about, especially when considering what we are talking about here—your hard-earned life savings and financial goals?
In other industries, the fiduciary standard is never a question. For attorneys, they cannot take money from the opposing counsel to give you the wrong legal advice. For doctors and nurses, they cannot recommend drugs to patients while also getting paid by those same drug companies. The financial services industry as a whole is not yet enmeshed into a fiduciary standard, but we are certainly making strides in the right direction. For now, if you find someone that holds themself out to be a fiduciary financial advisor, you can be confident that you are in good hands.
How Do I Find A Fiduciary Financial Advisor?
An easy way to make sure that you are working with a fiduciary financial advisor is to request to see their Form ADV Part II. In addition, you can also ask the advisor if they have signed a Fiduciary Oath.
Work With A Fiduciary Today
In the long run, it is crucial to the success of your financial goals that all of the advice that you are given is provided to you with your best interest at the forefront. For that reason, it should be priority number one for you to work with a fiduciary financial advisor. At Baobab Wealth Management, we always work with our clients in the fiduciary capacity. To learn more and engage with a fiduciary, do not hesitate to reach out to me today by calling 907-317-8454 or emailing firstname.lastname@example.org to schedule your free introductory meeting.
James Miller is the founder of Baobab Wealth Management, and offers advisory services through Intervest International Inc., an SEC registered investment advisor. With 20 years of experience, Jimmy works with individuals and families to create financial plans that address their individual situations. He has a bachelor’s degree in business administration and holds the CRPC (Chartered Retirement Planning Counselor) and the CMFC (Chartered Mutual Fund Counselor) designations from the College for Financial Planning. When not working on a financial plan, you will usually find Jimmy with his wife, Sonja, and his son, Hendrik, or his clients enjoying the great outdoors! Jimmy is an avid fisherman, hunter, scuba diver, mountain climber, sailor, and world traveler! He also enjoys volunteering his time with the Boy Scouts of America as a troop leader. Learn more about Jimmy by connecting with him on LinkedIn.