There are many reasons to avoid non-fiduciary financial planners and investment managers. They may steer you toward sub-par investments that pay them a commission, or whittle down your portfolio’s return through high fees and expenses. But setting aside the reasons to avoid non-fiduciaries, why should you choose to work with someone who is a fiduciary?
For starters, advisors who follow a fiduciary standard are required to put their clients’ interests first—before their own financial interests or their firm’s sales goals. That means the advice they give you will be based solely on what’s best for you, whether or not it benefits them or their employer.
Fiduciary Financial Advisors Do Their Research
Fiduciaries must make sure their recommendations are based on accurate and complete information. That means they are required to thoroughly analyze your accounts, goals and circumstances before recommending that you buy an investment or use a particular savings vehicle. Fiduciaries must then monitor their recommendation to make sure that it remains appropriate for their client on an ongoing basis.
They Are Clear About Their Fees
Advisors who follow fiduciary requirements have to be upfront about all of the fees they charge and commissions they receive. This kind of transparency is critical because fees, expenses and commissions can be major detractors from your portfolio’s long-term performance.
Even a seemingly small annual fee—say, 0.75%—can cost investors tens of thousands of dollars in lost investment growth over a 20-year period, according to the Securities & Exchange Commission.
Fortunately, the fiduciary standard discourages advisors from offering investment recommendations that cause clients to pay higher fees and commissions. As a result, working with a fiduciary can help keep your costs down and your savings up.
They Must Avoid Conflicts of Interest
Fiduciary advisors must disclose any instances in which they are compensated for making a certain recommendation. In fact, under the Department of Labor’s recently enacted fiduciary rule, advisors working with retirement accounts are barred from making recommendations that represent a conflict. For example, an advisor can’t buy a stock and then try to pump up the price by buying it for their clients’ portfolios, nor could they recommend a product that resulted in higher commissions or fees for themselves.
A fiduciary advisor will help you minimize fees, avoid conflicts of interest and put you at the center of any financial advice. If your current financial advisor doesn’t seem to model these behaviors, consider finding one who does.
1 Securities & Exchange Commission, “How Fees and Expenses Affect Your Investment Portfolio.” 2016.