Do you know if your financial advisor is a fiduciary or not? It is a vital question that everyone needs to answer before hiring a financial advisor. Fiduciaries are obliged by the law to put their client’s needs before their own. According to the law, registered investment advisors (RIAs) must provide fiduciary duties to each client. Unfortunately, not every financial advisor is a fiduciary. Many of them are brokers. That said, you can easily find yourself in the hands of a broker passing as a financial advisor and end up counting losses since they could put their needs before yours.
It’s essential to note that, unlike registered investment advisors, the law doesn’t oblige brokers to act in your best interest. A broker will only sell investment products suitable for clients’ requirements and financial capability. They aren’t required to sell products that serve the client’s best interests. With that in mind, it’s best to determine whether the professional you’re about to hire is a fiduciary financial advisor or not. This article will highlight important questions to ask a financial advisor and traits to look out for to know whether they’re fiduciary. Have a look!
Essential Questions To Ask Your Financial Advisors
When looking for a financial advisor, make sure to ask these questions to determine whether or not they’re fiduciary:
What Legal Standards Do They Work Under?
Regarding understanding the legal standard a financial advisor operates under, there’s no better way than to ask directly. If you’re yet to determine if they’re fiduciary, ask without hesitation. When asking the question, ensure to do so and expect a direct answer. Understanding the legal standards controlling the relationship between you and the financial advisor is vital.
Besides a verbal answer, you should get the agreement in writing. If the financial advisor promises to act in your best interest, ensure they provide you with a written agreement stating the same. Also, ask them to specific agreement passages confirming they’re fiduciary.
Are They Dual-Registered, And If Yes, Will It Interfere With Your Relationship?
As an investor, you should understand that some financial advisors are dual-registered. Dual registration isn’t a new phenomenon in a world where everything is evolving fast. Dual-legislation means that a financial advisor can act as a fiduciary for a particular client and a broker to another. With that in mind, it’s essential to know if your financial advisor is a fiduciary for every client or not. If they’re dual-registered, it’s vital to understand how it will affect your working relationship and at which capacity they’re willing to work with you.
Do They Receive Compensation For Selling Financial Products?
Among the most common differences between fiduciaries and brokers is that fiduciaries don’t get an extra income after selling or recommending investments. Therefore, if your financial advisor asks or gets commissions for selling financial products, they act as brokers, not fiduciaries.
Characteristics Of A Fiduciary Financial Advisor
Here are some traits to look out for in a fiduciary financial advisor:
Works With Undivided Loyalty
As already stated, a fiduciary financial advisor must put their client’s interests before their own. A fiduciary financial advisor is an employee of a particular client, meaning they owe their loyalty to their employer, unlike a broker, who owes their loyalty to a brokerage company.
Avoids Conflict Of Interest
A fiduciary should avoid placing themselves in a position where there is a conflict of interest position with their clients. However, if this is impossible, they should provide their client with clear information concerning the nature of the conflict or at least get the client’s consent to place themselves in a conflict of interest situation.
Provides Full Disclosure
A fiduciary financial advisor provides full disclosure of every service they provide. In short, they should ensure they inform the client about the available options, associated risks, and benefits.
Don’t Exploit Clients
A fiduciary is always careful to avoid any move that doesn’t align with their client’s interests. Once they learn about an opportunity, they shouldn’t take advantage of it, even if the client isn’t able to utilize it.
A fiduciary financial advisor should always work towards your best interests. They’re obliged by the law to do so. Therefore, if you think your financial advisor isn’t concerned about your interests, it’s a clear indicator that they aren’t fiduciary but brokers.
It’s therefore essential to take note of the information provided above to understand if the financial advisor of your choice is or is not a fiduciary. Working with a fiduciary gives you peace of mind since you can rest assured that, no matter what, they’ll work for you as if they were you.