Many news outlets are running articles about the need for advisers to act as a fiduciary. So what IS a fiduciary, and should it matter to you?
New regulations that would require all financial advisers to act as a “fiduciary” for their clients has stirred up some spirited debate. A fiduciary is someone who must always act in good faith, in the best interest of their clients, and to put clients’ financial well-being ahead of their own. Not everyone providing financial advice is required to meet this standard now, and you might conclude that expecting the fiduciary standard from your adviser makes sense.
I will leave the details on how the two sides defend their side of the argument to others. More importantly, what is the bottom line for you, the consumer? Since I act as a fiduciary for all of my clients, you might expect me to bang that drum, but the issue requires more nuance than a good/bad sound bite:
- “Commission” does not equal “evil”. For clients without a lot of money saved up, buying investments on commission could be much cheaper than paying for a financial plan. Be aware that commissions create a conflict of interest not found in other forms of payment, so do not hesitate to ask questions. A reputable adviser should not hesitate to explain how they get paid.
- Fiduciary is a legal definition, not a moral one. I started my career earning commissions, and my moral standards did not change when my form of compensation changed. A solid reputation is critical for a financial adviser, so most act in the client’s best interest whether they are legally required to or not. If having the legal backing of the more stringent fiduciary rules helps you better trust the advice you receive, then work with a fee-only adviser.
- Some advisers have their hands tied. Their employer’s Compliance department may prohibit the signing of a fiduciary oath not written by the employer. Any agent who sells insurance products is legally required to act on behalf of the insurance company, not the consumer. This does not automatically make that adviser untrustworthy! You should simply ask more questions.
I welcome clients who want a fiduciary obligation. My clients do not need to worry about other parties affecting my recommendations, which helps some trust the advice more. However, I believe that this difference in legal obligation is less important to my clients than the clarity of my advice, how I charge for advice, and how much easier it is to work with me.
Please spread the word on this issue so people can make their own decision. I offer a free “fiduciary second opinion” – simply contact me to take advantage of the offer!