By definition, a financial fiduciary is someone who is legally bound to acting in the best interest of a client. But what does that mean?

Because fiduciaries work in their clients’ best interests, they are supposed to recommend investments and products based solely on the client’s needs, not what will net them the greatest commission or fee. Fiduciary advisors are also legally obligated to disclose any potential conflicts of interest they may have.

Fiduciaries, in this capacity, have to fulfill both a duty of care and a duty of loyalty. They must review all available information about a client’s financial life before being informed enough to make a recommendation, and they must not use their position to benefit themselves before the client, such as recommending a financial product to a client that they make a commission on.

Now I know it is perplexing to many people unfamiliar with our financial industry that anyone considered a “financial advisor” would even be allowed to not act in their client’s best interest. And look, I’m with you—it feels like the sort of protection that consumers need, and at the bare minimum it seems this should be a very easy thing to conclude about an advisor without having to do any digging.

A fiduciary advisor is a financial professional who is legally and ethically bound to act in the interests of their clients. Fiduciary advisors must prioritize the needs of their clients above their own needs.

Luckily—there are more tools now than ever before, so let’s walk through them.

Firstly, the term “Financial Advisor” casts a pretty wide net. It could sort of mean anything from investment management or financial planning (both of which are what Howe & Rusling does) to banking or insurance sales or options trading.

And it all comes down to how the person and firm are regulated and compensated. There are three main categories: Registered Investment Advisors, Registered Representatives, and Dual Registered. If you take one thing away from today—let it be that first camp—Registered Investment Advisors. RIAs and their employees are regulated by the SEC, or states, depending on their size, and they must always act as fiduciaries. They’re legally bound to that standard, whereas the next two categories, registered reps and dual registered reps are not—they’re broker dealers or hybrid broker-dealers who are held to a lower suitability standard because they aren’t simply in the business of giving advice; they’re in the business of making commissions off specific products they sell to their clients, at least some or all of the time. Let that be a first red flag—if someone is trying to sell you any sort of product at all.

To be clear—Howe & Rusling is not a broker-dealer. We are a Registered Investment Advisor, and because of that distinction, without knowing anything about us, you can know that we aren’t selling you products that we earn commissions on, and we are legally held to a fiduciary 100% of the time.

The only way we, and other fiduciary Registered Investment Advisors, make money is from our clients’ management fees. That is another badge we wear with pride—a term known as “fee-only.” We do not earn commissions on investments, nor do we get a fee when we buy or trade securities. Because of this, fee-only financial advisors generally have fewer conflicts of interest than other advisors, and we still must disclose any conflicts we do have. Not all advisors are fee-only. There are commission-only advisors, as well as fee-based advisors—both of those types may earn money from commissions or referral fees.

Okay, so why does it matter? Why should you care that your advisor is a fee-only fiduciary?

I think you should care on an emotional and psychological level because I think any advisor you are engaging to manage your financial nest egg should be someone you trust to be a good steward of your hard-earned money, without any conflict of interest in giving advice. However, if that doesn’t get you riled up, you should care because you are wasting money that you wouldn’t otherwise be spending if your advisor is commission-based. If not held to a fiduciary standard, even if a broker has the best intentions, which let’s assume they do, the very model or system in which they’re operating puts them in a precarious position whereby it benefits them to select products or services for you that compensate them very handsomely compared with those that do not.

Wouldn’t you rather know your advisor doesn’t even have to wrestle with that conflict at all?

For non-fiduciary advisors, as long as an investment is suitable to the client’s risk profile, time frame, and objectives, they can recommend a very expensive product to the client because the broker herself is compensated very well for it. Oftentimes, the expense-ratios or load fees of such products are hidden, so clients don’t even know the fees they’re paying for products on top of any management fees they’re used to paying, and what amount of those fees are ending up in their advisor’s pocket in the form of commission.  

So, how can you tell if someone is a fiduciary advisor?

Firstly, I wouldn’t be afraid to simply ask. This is a very straightforward question, and if your advisor says anything other than simply Yes—full stop—then I would venture to say that is another red flag, and they are likely not a fiduciary. However, if you’d like to confirm this information yourself, a good starting point would be through the SEC’s website. The SEC has an advisor search tool, and if the firm is a Registered Investment Advisor, they will have been required to file an annual Form ADV which outlines the firm’s services, fees, credentials and disciplinary history.

The Form ADV Part 2A specifically is actually a longer-form brochure which spells out in plain English everything you’d ever want to know about how the firm operates and how it makes money from its various services.

However, remember the dual-registered category of advisors I mentioned? Those firms are confusing, yet again, because they, too, will have filed Form ADV, but they will have disclosures in it and on their website about the products they offer in accordance with their broker-dealer affiliation. For that reason, once you’ve done your SEC digging, there are also a few online resources for finding fee-only fiduciary advisors. Smart Asset, NAPFA, and the CFP Board are different resources whose websites function similarly—use the search tool to find fee-only fiduciary advisors near you. Those websites may not be as complete as the SEC given advisors have to pay to be represented, but they’re a reliable tool for finding fiduciary advisors.

Look, I am with you—none of this should be this complicated or murky or disconcerting.

It is something we see with prospective clients all the time—we can take one look at their statement, and one glance at their “advisor’s” website, and know that the advice they’ve been getting and the products they’ve been put in, have not been the most cost-effective ones and have been first and foremost benefitting their advisor. Again, this doesn’t necessarily make your advisor a bad person or even a bad advisor—it simply makes your advisor conflicted. Rely on a fee-only fiduciary Registered Investment Advisor, and rest assured that no underlying conflict exists. And when it comes to assessing a potential advisor once you’ve narrowed it down to a few different fiduciary options?

My best advice is this: listen to your gut.

You should not feel indifferent toward your advisor. You should trust your advisor implicitly, insofar as you are comfortable giving them discretion. You should feel comfortable calling them at anytime; you should be able to call them anytime. You should know the person responsible for managing your account, and if it’s a team, you should be comfortable with each member of the team. You should hear from them! And they should come to mind when you are faced with any kind of financial predicament or question or need—you should wonder what their advice would be and want to talk through long-term goals with them. If any of that is not the case, or if you find yourself not really sure exactly what it is that your advisor does for you besides “manage your mutual funds for you” (another red flag, I might add—mutual funds are vehicles with multiple layers of opportunities to tack on fees that you might not even see).

The point is, I’d urge you to shop around for a fiduciary advisor that you feel really strongly about.

There is simply no harm in interviewing new firms, especially now that you’re armed with all of the above info on how to assess an advisor. And by the way, one industry certification that should give you an added layer of peace of mind is the CFP® mark after someone’s name. The CERTIFIED FINANCIAL PLANNER™ certification has been the standard of excellence for financial planners for decades. CFP® professionals take a holistic, personalized approach to bring all the pieces of your financial life together, and as part of their CFP® certification, they’ve made a commitment to act as a fiduciary when providing financial planning advice to you. 

At Howe & Rusling we always say: choose a team that you want to stand beside you, know the team who stands beside you.

It is one of the healthiest financial moves you can make now to change your financial trajectory well into the future.