What is a fiduciary?

A fiduciary is a person or organization that acts on behalf of someone else, putting their clients' interest above their own to preserve trust.
Being a fiduciary requires that this person or organization must legally and ethically act in the clients’ best interests.
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Why is working with a fiduciary financial advisor important?

When working with a fiduciary financial advisor, you’ll know that the person managing your money must make decisions in your best interest. 

Fiduciary advisors tend to have less conflicts of interest, further building trust with their clients. Also, if you work with a fiduciary you’re more likely to end up with a lower cost in fees and with recommendations that are specific to you and your goals. 

What’s the difference between the fiduciary duty and the suitability standard of investment advice?

The world of financial advice is very complex, and most of that complexity is unnecessary in our opinion.

One of the most complex issues in the industry is the standard that each Financial Advisor uses when they provide advice. The quick take is that a Fiduciary Advisor has to put the client’s best interest first and provide advice with that in mind. While a suitability advisor and the standard they follow is lower, they ensure sure the advice fits the client, it is not hurtful but that doesn’t mean that it is the best advice for you.

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What is a "Dually Registered" or
a "Dual Hat" financial advisor?


In our commentary about differences between fiduciary vs. suitability standard we described when an advisor serves as a broker (suitability standard) or as a fiduciary advisor (fiduciary standard). A ‘dually registered’ advisor also known as a ‘dual hat’ advisor, this one is registered both as a broker/representative of their firm as well as a fiduciary advisor. Most of the large national financial advisory firms you may know and recognize are registered like this, both as a broker representing their firm as well as a fiduciary putting the client’s interests first.  

As you can potentially notice an advisor that can play both roles, sometimes as a broker and sometimes as a fiduciary advisor has more potential conflicts than an advisor that doesn’t have such both roles. Issues may sometimes arise when either of their roles conflicts with the other. As a broker you represent your firm and look out for the best interest of the firm, but as a fiduciary you’re supposed to look out for the best interests of your client. 

Such advisors can at times be and act as a broker for a client, but be and act as a fiduciary for another client. Sometimes such advisors can be both a broker and then a fiduciary advisor (or vice versa) for the same client, depending on the timing of advice (fiduciary advice) and product selling (as a broker). 

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Benefits of a fiduciary

1.  Fiduciary financial advisors do their research
2.  Fiduciaries are transparent
3.  Fiduciaries must avoid conflicts of interest

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Fiduciary financial
advisors do their research 


  • Fiduciaries ensure that their recommendations are based on accurate information. This means they are required to review your goals and circumstances before making any recommendations.

  • Fiduciaries must monitor their recommendations to make sure that it remains appropriate for their client best interests and goals.

Fiduciaries are
transparent


  • Advisors who follow fiduciary requirements remain transparent by being upfront about the cost of all fees and any commissions they receive from their clients’. 

  • Fiduciaries must thoroughly discuss decisions with their clients, providing all relevant information and facts. This ensures clients’ understand the decisions that are being made in regards to finances and investments.

Fiduciaries must avoid conflicts of interest


  • Fiduciary advisors must disclose when they are compensated for making recommendations. They do not make commissions off of investment products.

  • This is particularly relevant to "dual hat" financial advisors. Always remember to ask your advisor what investment advising standard they will follow when advising you.

 

Check reliable
online sources

You can use a few online databases to find firms that are registered as RIAs:

  • NAPFA.org  (The National Association of Personal Financial Advisors)

  • SEC (U.S. Securities and Exchange Commission) Advisor Database

How do I know if my financial advisor is a fiduciary?

Just Ask!

Don’t be afraid to ask questions. The easiest way to find out if your advisor is a fiduciary is simply to ask. If your advisor says they are not a fiduciary, follow up and ask why. It’s important to understand who you’re working with and how your advisor handles clients and how they are getting compensated.

Fiduciary financial advisors taking new clients

InvestEd is proud to offer the fiduciary standard of care and consideration to all of our clients. We are located in Baltimore, MD and we help clients from all over the United States. Our investment advisors are ready to help you reach your financial goals by providing free financial education and low-fee, no minimum fiduciary investment advice. We can accommodate our advice to you no matter what your financial journey may look like. 

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