Is my financial advisor a fiduciary?

Wondering “is my financial advisor a fiduciary?” Hiring the wrong professional could cost you significant money and long-term financial security.

Who you take financial advice from is completely your prerogative, but we believe that you should be working with a Fiduciary.

Searching For a Fiduciary

Maybe, you already have a financial advisor who provides you with investment management services. Or maybe you are searching online for an independent and/or fee-only financial adviser. (The National Association of Personal Financial Advisors – NAPFA- website is a great place to start.)

💡 KEY TAKEAWAY – Regardless of your current situation, it behooves you to start demanding your financial adviser be a fiduciary!

Before we get into these nuances and expose industry jargon, let’s first discuss what or who a fiduciary is and what a typical client’s expectation would be regarding one.

What is a fiduciary?

Investopedia defines fiduciary as “A person or organization that acts on behalf of another person or persons, putting their client’s interest ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being legally and ethically bound to act in the other’s best interest.”

We want you to be prepared for what happens after you start demanding the “F” word,” meaning your advisor must be a Fiduciary! You are making a statement that only the best is right for you, that you are not an ATM for a so-called financial advisor.

You are also peeling the onion, layers deep, exposing some of the investment management industry’s dirtiest little secrets. In our opinion, the most important is that the “F” word has many different meanings and implications, depending on who you are.

Who is a fiduciary?

A doctor is a fiduciary to their patient, an attorney or CPA to their client, a trustee to a beneficiary, and a board member to their organization. This sounds straightforward, but it is exactly where the onion comes into play.

When you start to peel back layers, you find out that there are different types of fiduciaries, and they can have different responsibilities and legal liability depending on the profession and even within a profession depending on contractual arrangements and/or specific regulations and registrations.

This is especially inherent to the financial advice and investment management industry. It is as though you need an expert to help you identify whether you can trust other experts. Are your eyes tearing up yet?

So-called “Financial Advisors”

💡 KEY TAKEAWAY – If you are working with a fiduciary, there will be a signed agreement or contract specific to the scope of work you expect them to perform and what they charge for such services.

This is different from an account application form or risk tolerance questionnaire. It is more important than a handshake, big words, or an impressive presentation. It is also your first opportunity to make sure that you are not working with a so-called financial advisor who is really just a wolf in sheep’s clothing salesperson.

A complete and thorough scope of work and an agreement or contract are the only things that clearly and legally establish fiduciary responsibility and, therefore, the liability of a financial advisor and/or investment manager to a client. If you do not have them, chances are you are not working with a fiduciary!

“We make money, when you make money” Yeah, right!

When you hire a financial advisor, you probably expect that they will always act as your fiduciary. In fact, they probably even told you that they “only do what’s in your best interest.” They may have even said that they are your fiduciary. It does not matter if you are engaging a fee-only financial advisor or planner, an independent financial advisor, an investment manager, an online financial planning service, or even a financial consultant. It does not matter if you find them on NAPFA’s website or are referred by a friend.

Words are cheap. We encourage you to carefully read through the scope of work and thoroughly assess any contract or agreement. Yes, it is boring, but that is the point.

💡 KEY TAKEAWAY – In the boring details, you discover what you are actually being sold!

How Financial Firms Work

I mentioned earlier that there are various nuances to how the “F” word is applied to different parties within the financial advisor and investment management industry. This is where that boring fine print becomes important. Financial advisors and investment managers, first and foremost, represent the companies that they work for. The companies are the ones who create client agreements, permitting or prohibiting access to certain services, products, and investments.

They design the compensation plans that dictate professional behavior and the parameters of what their representatives will, or can, consider as in your best interest. You might refer to these representatives as financial advisors, financial planners, investment managers, etc.

💡 KEY TAKEAWAY – Financial firms limit the type of advice that their representatives are permitted to give!

Limitations are often driven by a phenomenon called “deep pockets” fear. This is when a financial firm is concerned about being held liable for the advice given or product sold to a client by one of their representatives. To combat this issue, firms strictly limit the type of advice and services that would most likely lead to litigation, such as anything that creates a broad and/or open-ended fiduciary status.

💡 KEY TAKEAWAY- These types of limitations can be buried in the legalese of Investment Advisory and/or Financial Planning Agreements.

Often, they will limit broad fiduciary status to only “between the initial engagement and the final delivery of a written financial plan.” This might sound innocent, but what happens right after the financial plan is delivered?

The client is sold the product and/or services that are needed to make the financial plan work as illustrated. Hmm…You hired a fiduciary to tell you how you are doing and what you might need. Moments later, the fiduciary status is gone, and now you are likely dealing with someone who needs to fill their sales quota so they can get a paycheck. Darned “F” word!

What about us?

It is customary to hear the “F” word reverberating through a S.E.E.D. office on any given day in any given location. We use it to emphasize our points, to express our opinions, and because it just feels good to say what we truly think. We are not apologetic about this or care if it offends people. In our house, it is our rules, and the number one rule requires the “F” word to be used a lot.

Our modus operandi is to push boundaries with a certain edge, hence our Ditch the Suits podcast (listen here), where we get real discussing the things people need to know to reach financial freedom and how to protect their money from “so-called financial advisers.” We think the “F” word and financial services belong together.

We believe it is in your best interest to seek out the “F” word, to seek advice first. It’s your money and your life; get the most out of it.

Don’t just take our word for it, you can read this helpful resource from the Fee-only Network.

S.E.E.D. Planning Group LLC (S.E.E.D.) is a Registered Investment Advisor (RIA) with the Securities Exchange Commission. S.E.E.D.’s team provides investment fiduciary and financial planning services to clients. Our fees are disclosed, easy to understand, and not predicated on product sales.