By Paul Bullock
You likely know who manages your money. But do you understand what kind of advisor is managing your money? Your financial advisor may be a fiduciary—or he or she may not be.
It’s important to know whether or not your financial advisor is held to the fiduciary standard, which lets you know that he or she truly has your best interests in mind.
Let’s discuss the basics of what a fiduciary is and how one can help you reach your financial goals.
Fiduciary, Defined
A fiduciary is a person or organization who is legally and ethically bound to act in the best interests of another party. In other words, a fiduciary must always put the needs of the other person ahead of his or her own. (1)
There are many different types of fiduciaries, but, in the context of financial advisors, the term usually refers to investment advisers. Investment advisers are regulated by the U.S. Securities and Exchange Commission (SEC) (2) and are held to a fiduciary standard, which means he or she must always put his or her clients’ needs first and disclose any potential conflicts of interest.
The fiduciary standard is generally considered to be higher than the suitability standard that some other types of financial advisors are held to. Under the suitability standard, (3) advisors only need to recommend investments that meet your objectives. But just because they can accomplish the goal doesn’t mean they are best fit for your unique situation.
How Do You Know If Your Advisor Is a Fiduciary?
There are a few ways to tell if your advisor is a fiduciary. One is to look at his or her disclosures: Most fiduciaries must disclose their status to their clients. Another is to ask about his or her compensation: If he or she is paid commissions for selling certain products, that could create a conflict of interest. If your advisor charges commission-based fees, he or she can still act as a fiduciary as long as the conflict of interest is disclosed and you give your approval.
Ultimately, the best way to know if your advisor is a fiduciary is to ask directly. If he or she is hesitant or unwilling to be transparent about his or her actions or compensation, that’s a red flag.
Benefits of Working With a Fiduciary Financial Advisor
When it comes to your finances, working with a fiduciary financial advisor can be one of the smartest decisions you make. Here are a few reasons why:
- A fiduciary financial advisor can help you develop a comprehensive financial plan that considers all aspects of your life. This includes your current situation, goals, risk tolerance, and a detailed plan to help you make sound financial decisions and stay on track to reach your goals.
- A fiduciary financial advisor can help you save for retirement, invest in the stock market, and safeguard your assets from unexpected expenses. He or she has the experience and knowledge to help you grow your wealth while minimizing risk.
- Working with a fiduciary financial advisor can give you comfort knowing someone is looking out for you, which can help you focus on other essential aspects of your life, such as your career and family.
Risks of Not Working With a Fiduciary Advisor
It’s critical to rely on a fiduciary advisor when it comes to financial planning and investment. Because a fiduciary acts in your best interests, his or her incentives are in line with yours. Because not all financial advisors are held to the fiduciary standard, here are some of the risks you may face when working with a non-fiduciary advisor:
- They may have conflicts of interest: Non-fiduciary advisors may have financial incentives to steer you toward certain investments. For example, they may earn commissions on the products they sell you or are paid by third parties for selling their products. This can mean their interests are no longer necessarily aligned with yours.
- They might not have to represent your interests: Non-fiduciaries may not always behave in your best interests because they are not required by law to do so. They can suggest assets inconsistent with your objectives or incur unnecessary financial risks.
- You may not be protected in case of fraud: If you work with a non-fiduciary advisor and he or she defrauds you, you may not have any legal recourse. However, if you work with a fiduciary advisor and he or she commits fraud, you may be able to sue and recover your losses.
- You may not be able to access certain investments: Some investment opportunities, such as hedge funds and private equity, are only available to fiduciaries. If you work with a non-fiduciary advisor, you could miss out on potential investments that could help grow your wealth.
Don’t Gamble With Your Future
It’s up to you to do your research and find an advisor who is a fiduciary. Not only are we fiduciaries at Wellington Investment Advisors, but our goal is to build a lifelong relationship with every client. We invite you to entrust your financial future with us. Schedule a no-obligation introductory meeting or reach out to me at paul@wellingtoninvestmentadvisors.com or by phone at (812) 333-0874. With a fiduciary financial advisor by your side, you can feel confident knowing your investments are in good hands.
About Paul
Paul Bullock is CEO of Wellington Investment Advisors, an independent, boutique fiduciary firm serving pre-retirees and university faculty across Indiana. With over 32 years of financial experience, Paul is committed to building long-term relationships through thoughtful, personalized investment advice and guidance. He focuses on a disciplined tactical asset allocation approach to money management through a strong understanding of economic and market conditions and strives to build trust with clients by providing sound guidance. Paul understands the hard work his clients have put in to arrive at where they are today and wants to see them succeed in their goals for the future. Paul graduated from the University of Texas with an MBA, as well as a bachelor’s degree in finance, and has been dedicated to assisting clients with their financial needs ever since. When he is not working, Paul enjoys time with his family and is also an avid equestrian polo player who helps raise money for over 18 different charities through his playing. To learn more about Paul, connect with him on LinkedIn.
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(1) https://www.investopedia.com/terms/f/fiduciary.asp
(2) https://www.sec.gov/about/offices/oia/oia_investman/rplaze-042012.pdf
(3) https://www.investopedia.com/articles/professionaleducation/11/suitability-fiduciary-standards.asp