Fiduciary Financial Advisors

When hiring a financial advisor, you’ll want to know they work in your best interest. For this reason, it’s important to find a professional that adheres to a fiduciary duty. That is, they uphold high ethical standards, put your goals first, and are transparent about their compensation.

What Is a Fiduciary Financial Advisor?

A fiduciary is a financial advisor legally bound to act in a client’s best interest. According to Stephen Kates, CFP^®, Principal Financial Analyst for Annuity.org, these advisors often “avoid the conflicts of interest that typically come with commissions or product sales.” Therefore, he says, most “work on an hourly or fee-for-service basis only,” which is “beneficial because clients can feel confident that the advice they receive will be for their benefit first, and not to enrich the advisor through biased sales techniques.”

Fiduciary financial professionals usually hold titles or certifications from accredited institutions and colleges. They may also maintain registrations with the U.S. Securities and Exchange Commission (SEC) or their state securities regulator.

Pro tip: How to know if an advisor is a fiduciary

Benefits of a Fiduciary

• Objective advice. Because a fiduciary must legally act in your best interest, reasonably expect one to provide an honest and fair assessment of your financial picture.
• Avoids conflicts of interest. Fiduciaries must strive to prevent potential conflicts of interest and, if any exist, disclose them to their clients.
• Transparent fee structure. When you work with a fiduciary, you can expect them to be upfront about their payment schedule and compensation.
• Act in your best interest. Bound by law and any professional title(s) they hold, a fiduciary must put your needs and goals first.

Fiduciary Fee Structure

Fiduciary financial advisors often use a fee-only compensation structure. Avoiding earning commissions allows them to prioritize your needs and reduce conflicts of interest. Depending on the services you require, a professional may use any of the following structures:

• A percentage of assets under management (AUM). Common for portfolio management or ongoing advisory relationships.
• Flat or hourly fee. Typical for one or two meetings rather than a continuous arrangement.
• Annual retainer. Frequently for short-term projects, this is where you pay upfront for future services.

If you’re unsure of an advisor’s fees, look up their Form ADV. Often available on a firm’s website or through the SEC, this shows information on their compensation and potential conflicts of interest. Additionally, Kates recommends asking them questions such as “How are you compensated?”, “What are my all-in costs?”, and “Are there any services that cost extra?”