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What Is a Fiduciary Financial Advisor, and Why You Should Care?


What Is a Fiduciary Financial Advisor?

A fiduciary financial advisor is a professional that makes financial decisions that are in the best interestĀ of their clients. This is important to know, because not all financial advisors put your interest above anything else. In fact, anyone who are giving financial advisor can call themselves a financial advisor.

Whereas, a fiduciary financial advisor is a registered investment advisor whom you entrust with your financial affairs. They are required by law to act in your best interest. It matters, because sometimes you place great trust and confidence in your advisor. As a result, there is a fiduciary relationship between you two.

To find a fiduciary financial advisor who serves your area, try using SmartAssetā€™sĀ financial advisor matching tool .

What Is a Fiduciary, Generally?

A fiduciary is someone who must legally put your best interest first, before his or her own. Fiduciary exists in several areas such as law, real estate, medicine, finance, etc. For example, in law, an attorney owes a fiduciary duty to the client and must serve the clientā€™s interests with the utmost loyalty and devotion.

Next Steps: Planning for Retirement can be overwhelming. We recommend speaking with a financial advisor. This tool will match you with up to three advisors.

Hereā€™s how it works:

Answer these few easy questions about your current financial situation.

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Therefore, an attorney is also bound to conduct itself as a fiduciary, occupying a position of the highest trust and confidence, so that, in all the attorneyā€™sĀ relations and dealings with theĀ client, it is theĀ attorneyā€™sĀ duty to exercise the utmost honesty, good faith, fairness, integrity, and fidelity, and if theĀ attorneyĀ does not, theĀ attorneyĀ is strictly liable or accountable to theĀ client.

In the same manner, a fiduciary financial advisor who is advising you about investments, must recommend you investments that are best for you. They must tell you about their qualifications as well as the cost of their services.

However, not all financial advisors place their clientsā€™ interests above their personal gain. In other words, they do not haveĀ  to act in your best interest. So, they can recommend you financial products simply because they will pay them more. Only fiduciary financial advisors are required to place your interest above theirs.

This table below illustrates who is and who is not a fiduciary financial advisor.

Professional Fiduciary
Doctor Fiduciary
Lawyer Fiduciary
Accountant Fiduciary
Stock Broker No
Trust Officer Yes
Insurance Agent No
Registered Representative No
CFP Practitioner Maybe
Financial Planner Maybe
Registered Investment Advisor Fiduciary
NAFPA-Registered Financial Advisor Fiduciary

Duties Fiduciary Financial Advisors Owe You

Fiduciary financial advisors owe two kinds of duties to you: a duty of care and a duty of loyalty. This means that a fiduciary financial advisor must, at all times, serves your best interest and not subordinate your interest to its own. In other words, the fiduciary financial advisor cannot place its own interests ahead of your interests. This combination of care and loyalty obligations requires the fiduciary financial adviser to act in your ā€œbest interestā€ at all times.Ā 

Although investment advisersĀ oweĀ theirĀ clientsĀ aĀ fiduciaryĀ duty, that fiduciaryĀ dutyĀ must be viewed in the context of the agreed-upon scope of the relationship between the adviser and theĀ client.

Breach of Fiduciary Duty

When, in the course of his or her professional dealings with aĀ client, a financial advisor places his personal interests above your interests as a client, the fiduciary financial advisor is in breach of his or her fiduciaryĀ duty by reason of the conduct. A few examples of breach of a fiduciary duty includes failing to disclose conflict of interests, investing without the clientā€™s approval, excessive trading to earn commissions, etc.

So a question you might ask is: what happens when a fiduciary financial advisor breach his fiduciary duty?

When something like that happens, you may have a civil claim against your fiduciary financial advisor. To prove your claim, you will need to establish that your advisor was indeed fiduciary, breach their duty of care and loyalty, and you incurred damages as a result of the breach. If you are successful, you may be awarded damages. The financial advisor will likely face disciplinary action.

Choosing the Best Fiduciary Financial Advisor

Now that you have an ideaĀ  what a fiduciary financial advisor is and the importance of working with one, you should start working with one as soon as possible.

Choosing a fiduciary financial advisor is crucial to the success of your financial planning. Even a great plan can go awry if a fiduciary financial advisor fails to uphold his or her fiduciaryĀ duties. Finding a fiduciary financial advisor, however, can be overwhelming. In other words, knowing which one is indeed a fiduciary can be difficult.Ā 

SmartAssetā€™sĀ financial advisor matching toolĀ is perhaps the best way to find an independent financial planner who you can trust. That is because each advisor has been vetted by SmartAsset and is legally bound to act in your best interest.

The free matching tool will pair you up to 3 financial planners near you based on your needs. The way it works is very simple:

  • Answer a few questions: you let Smart Asset know what youā€™re looking for in a financial planner, so they can find a match near you
  • See your local financial planner matches: based on your answers, Smart Asset will match you with up to three financial advisors in your area.
  • Book appointments: you can use Smart Assetā€™s online tools or concierge service to book an appointment.

If youā€™re ready to be matched with local financial planners that will help you achieve financial goals,Ā get started now.

Who Is Not A Fiduciary Financial Advisor

As mentioned above, not all financial advisors are fiduciary. Financial advisors who are brokers, for example, do not owe you any fiduciary duties even if they are giving you financial advice. While the law still requires them to recommend investments that are right for you, they may also consider the commission they make from selling you an investment.

You will know that a financial advisor is not fiduciary if they have the following statements on their websites or marketing materials. In fact the Securities and Exchange Commission (SEC) requires brokers to have them:Ā 

Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, ourĀ profits, and our salespersonsā€™ compensation, may vary by product and over time.

In conclusion, it is important to work with a financial advisor who put your bestĀ  interest first. Thatā€™s why SmartAssetā€™s free matching tool makes it easier to find a fiduciary financial advisor in your area in less than 5 minutes.

Related Articles:

The Best Financial Advisors Near Me: Where to Find Them

How to Choose A Financial Advisor

5 Questions to Ask A Financial Advisor

5 Mistakes People Make When Hiring A Financial Advisor

Work With the Right Financial Advisor

You can talk to aĀ financial advisorĀ who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).Ā Find one who meets your needs withĀ SmartAssetā€™s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals,Ā get started now.

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