Do you have a financial advisor? Are you considering hiring one? Make sure your financial advisor is a fiduciary. Whether your advisor is a fiduciary may mean more money in your pocket in the long run. Why? Because fiduciaries are held to a higher standard under the law.

Why should I care that my financial advisor is a fiduciary?

The answer is simple: If your advisor has fiduciary duties to you, then he or she is legally required to put your interests above their own. Because fiduciaries must serve your interest, they are held to a higher standard that non-fiduciaries. Non-fiduciaries have no such duty. And virtually anyone can call themselves a financial advisor or wealth manager.

That may sound obvious to you: you would expect your financial advisor to serve your best interest. But non-fiduciary financial advisors are held to a lower standard of care under the law, called the suitability standard. Recent changes to rules–the S.E.C. published Regulation B.I. in June 2020–have tried to change the lower standard of care that brokers give under the suitability standard. But it remains to be seen if and how Regulation B.I. will actually cause brokers to act more like fiduciaries.

A financial advisor who is a fiduciary must also avoid conflicts of interest–or at least tell you about them so that you can make a fully informed investment decision. Consider one common conflict of interest in the financial world: high commissions or fees that a financial advisor may earn by selling you a certain investment product. If your advisor is motivated to sell you an investment because it comes with higher fees for the advisor, wouldn’t you want to know that?

Fiduciaries typically also have deep knowledge in their area. They are required to continually keep up to date on the latest developments in their field.

Lawyers, doctors, accountants–these are all fiduciaries. Why shouldn’t your financial advisor be as well?

How is this different from the “suitability” standard?

The suitability standard means that your financial advisor need only make a “suitable” investment recommendation–not the recommendation that is in your very best interest. This standard is lower than what a fiduciary must meet.

What does “suitability” mean in practice? If you ask an advisor for help with your 401(k) plan, and he has two investment options–one that pays him a high commission and one that pays him a low commission–yet both investments are “suitable” for your objectives, your advisor can choose the one that pays him a high commission (which comes out of your pocket).

How can I check if my advisor is a fiduciary?

You have several ways to check if your financial advisor is a fiduciary:

Ask them. They are required to tell you. Ask your advisor or potential advisor how they are compensated as well to get a better sense of how they will earn their fees. And remember that however financial advisors are compensated (flat fee, commissions, etc.) it is always paid from your account to theirs, so it is in your interest to know.

Know that Registered Investment Advisors (RIAs) who are registered with the U.S. Securities and Exchange Commission are fiduciaries. The same is true with Certified Financial Planners.

The National Association of Personal Financial Advisors maintains a database of financial advisors who are fiduciaries. These advisors use fee-only structures rather than charging commissions.

Your financial advisor may still have fiduciary duties, even if they don’t think they do.

Securities brokers and insurance salesman may say that they are not fiduciaries. But that is not the final say on it. Your financial advisor may still owe you fiduciary duties based on the facts and circumstances of your case, even if they don’t believe they are a fiduciary.

Facts that determine whether your advisor was acting as a fiduciary include your age, sophistication, experience, investment objectives, investment strategy, and others. And it is judged on a case-by-case basis. If you reasonably believed that your financial advisor recommended investments based on your best interest, and reasonably trusted them to do so, they may well be a fiduciary.

Contact us if your advisor hasn’t lived up to their fiduciary duties.

You worked hard for your money. Entrust it to a fiduciary: someone legally required to act in your best interest. If you believe that your financial advisor has violated his or her fiduciary duty to you, let Wilkowski Law give you a free assessment of whether you have a claim to recover your losses.