If you’re going to hire a financial advisor, one of your first questions should be, ‘are you a fiduciary?’ The answer should be ‘yes’. If the advisor does not say ‘yes’ to being a fiduciary, get away from them.
Being a fiduciary means being legally and ethically bound to providing advice that is in the best interest of the client. The fiduciary is expected to manage their client’s money so it benefits the client rather than for his or her own profit. A fiduciary financial advisor can not benefit personally from their management of your money. They must put their interests below that of their clients.
Some advisors only follow a suitability standard that requires them to make only suitable recommendations to their clients. The suitability standard only details that the advisor has to reasonably believe that any recommendations made are suitable for their clients, in terms of the client’s financial needs and objectives. This is much less of a commitement than being a fiduciary.
It’s not hard to believe that there are financial advisors out there that don’t have their client’s best interest in mind! When I was in my 30’s I went to a couple financial advisors that were not making recommendations in my best interest. One suggested I put $5000 in an annuity (not good advice for the amount of money and my age). Which I did. And the next one put my small nest egg in loaded funds (It is much better to buy non-loaded funds). It took me 7 years to get out of the loaded funds without a penalty and nearly 20 years to get out of the annuity. Read more about why hiring a fiduciary based advisor is so important.
A fee-only financial advisor has fiduciary obligation to act in your best interest. You may want to consider a fee-only advisor when you have a more complex financial situation that you don’t feel comfortable managing alone. Never hurts to hear some opinions on the subject: Should you Choose a Fee-only Financial Advisor?
NEW FIDUCIARY RULE
A new fiduciary rule is scheduled to go into effect in April, 2017, is being fought by some financial advisor and brokers. The new president may also have some impact on the viability of the new rule. Read DOL Fiduciary Rule: Everything you need to know