In the news, the word “fiduciary” is thrown around a lot in regard to financial advisors and their duties. The concept of a “fiduciary” can be confusing to some people, as many assume that all advisors, whether they are stockbrokers or financial planners, are required to act in their client’s best interest. Unfortunately, that’s not the reality. It’s important to understand the distinction between the different roles advisors play and what it means for you and your money.
What is a Fiduciary?
In essence, a fiduciary is similar to a trustee. An advisor who serves as a fiduciary accepts a responsibility to put their client’s interests first and foremost in all decisions. A fiduciary is supposed to avoid conflicts of interest and remain unbiased in their recommendations and advice. Additionally, all fees should be clear and discussed upfront. This gives you confidence that your hard-earned money is in good hands.
For example, following fiduciary duty prevents an advisor from making an investment with your money based on the commission they can receive. For those who are not held to a fiduciary standard, a recommendation made by advisors only has to be “suitable.” The problem is that some advisors could then sell high-fee products to receive a higher commission, even if a lower-priced option was just as suitable or available.
Over the years, this has made a significant impact on investors. According to a 2015 White House Council of Economic Advisers (CEA) report, fees and biased advice cost middle-class families in America an average of $17 billion per year and reduces annual returns on retirement savings by 1 percentage point. This may sound small, but a 1 percentage point lower return can reduce one’s savings by more than 25% over the course of 35 years.
Which Advisors Are Not Fiduciaries?
Even though some financial professionals use the term lightly, not all advisors are fiduciaries. Brokers and insurance agents working for large brokerage or insurance companies are not required to serve in a fiduciary manner. This is because they represent their company, and therefore are only required to provide you with “suitable” financial products, rather than those customized to your individual circumstances.
Wall Street brokerage firms can sell proprietary products, so their advice also has the potential to be biased. For example, annuities and other high-fee investments that provide brokers a lofty commission can still be sold into your retirement account. While brokers must inform clients that they’re choosing to be paid a commission, if the investor neglects to read the email notification they won’t know where their broker’s interests lie.
Which Advisors Are Fiduciaries?
When you’re searching for an advisor who serves in a fiduciary capacity, look for advisors who work with an independent broker-dealer or Registered Investment Advisory firm. Registered Investment Advisory firms are required to uphold a fiduciary duty, as are Accredited Investment Fiduciaries®, CERTIFIED FINANCIAL PLANNER™ professionals, and independent financial advisors.
At Key Wealth Partners, we desire to be a trusted partner on your financial journey. We are an independent financial services firm committed to helping you reach your goals. Our approach to investing is founded upon the highest fiduciary standards. Our independence serves as a basis to create a specific investment strategy tailored to meet your financial goals. Our advice is driven by one concern alone – the best interest of our clients.
While some advisors focus on selling products and following cookie-cutter approaches, we aim to bring together the many elements of our clients’ financial lives in a cohesive strategy that we proactively monitor and adjust on an ongoing basis.
By working with an advisor who holds to fiduciary standards, you can feel more empowered to make the best decisions for you and your finances. Clients have the power to ask questions and to demand the highest value for the service that advisors are providing. As a firm in the financial world, we understand people’s reservations or even negative connotations towards the underlying motivations of some advisors. We want to assure you that you can trust in the fact that our relationship with you is built on integrity.
Take the Next Step
It’s important to thoroughly research an advisor before choosing to work with him or her. An advisor should be open to sharing their business philosophy with you with you, how they choose investments, what their process looks like, any potential conflicts of interest they face, and how they’re paid.
At Key Wealth Partners, we take pride in our transparency and objectivity. If you’re unsure about your current retirement strategies, haven’t reviewed your investments recently, or are just interested in learning more about what it means to work with a fiduciary and what a comprehensive wealth planning process involves, I am happy to offer you a complimentary “Get Acquainted” meeting. To get started, give me a call at (717) 283-4186 or email me at firstname.lastname@example.org.
David Niggel, CFP®, ChFC®, AIF® is the founder and president of Key Wealth Partners, LLC, an independent wealth management firm serving individuals, families, and business owners. Along with over a decade of financial services experience, he has advanced knowledge and training in providing holistic financial planning with fiduciary and ethical care, holding the CERTIFIED FINANCIAL PLANNER™, Chartered Financial Consultant®, and Accredited Investment Fiduciary® certifications. With hands-on entrepreneurial experience, he has the unique ability to help clients meet both their individual and business goals. Based in Lancaster, he serves clients through the York, Harrisburg, Hershey, and Central, Pennsylvania areas. Learn more by visiting www.keywealthpartners.com or connecting with David on LinkedIn.