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What Is a Fiduciary Financial Advisor and Why Do You Need One?
Selecting a financial advisor is an important decision. You want to look for a person who has the experience and expertise to assist you in developing and executing a plan to help reach your financial goals. Your advisor should assist in making the complicated, understandable. They should help you navigate through the ever-changing rules, regulations and laws which could potentially impact your financial plan.
Your advisor should be a person committed to you and your interests first.
What Is a Fiduciary?
Broadly, a fiduciary is any person or organization with a legal obligation to act on someone else’s behalf. The obligation usually relates to the other party’s finances or property. That other party is legally known as the beneficiary.
All fiduciaries share two basic responsibilities — the duty of care and the duty of loyalty.
- Duty of care means that before they make any decisions, fiduciaries have to educate themselves on all available options and choose the best one for the beneficiary.
- Duty of loyalty requires that fiduciaries act solely on behalf of their beneficiaries. A fiduciary may not use their position of authority to further their own interests.
In addition to these primary duties, a fiduciary must abide by other secondary responsibilities that the law has identified. These include:
- Duty of confidentiality: A fiduciary may not share the beneficiary’s private information for their own benefit.
- Duty of disclosure: A fiduciary must disclose all information they use to make a particular decision.
- Duty of good faith: A fiduciary must make all decisions in accordance with the law.
- Duty of prudence: A fiduciary must act with the same care and caution that the beneficiary would use.
These duties apply to all fiduciaries, from the director of a large corporation to a financial advisor who works with the most inexperienced of clients.
Fiduciary Responsibility and the Financial Advisor
A financial advisor assists clients with managing their assets in pursuit of their goals and objectives. They partner with each client to understand their needs, preferences, and risk tolerances in order to craft customized strategies tailored to the client’s unique circumstances.
Responsibilities to the Client
A financial advisor helps the client develop action steps to help reach their financial goals. An advisor can assist the client to better understand the options available to them when making decisions, while also considering potential situations which might not always be top of mind. They may offer suggestions on a variety of financial topics including investment products and strategies, insurance, budgeting, estate and retirement planning, among others.
Financial Advisors who serve in a fiduciary capacity obligate themselves to this duty to their clients.
A Fiduciary Definition for the Financial Advisor
According to the National Association of Personal Financial Advisors, a fiduciary advisor is someone who manages the wealth and assets of another person by always putting that person’s interests first.  An advisor who presents themselves as a fiduciary must:
- Base their decisions on what’s best for the client, not what would generate the highest commission
- Find the best prices and terms for the client, even if it means earning a lower commission
- Use an objective and documented process to develop recommendations
- Help the client make the best possible decision by explaining options thoroughly and presenting all relevant information
- Avoid conflicts of interest like commissions whenever possible and disclose any inevitable conflicts to the client
- Check available sources to make sure their advice is up-to-date and accurate
All of these practices are part of fiduciary duty, which is a formal legal obligation. Once an advisor presents themselves as a fiduciary, they cannot breach this duty without being subject to legal, financial, and professional consequences.
Who Has Fiduciary Duty?
Some financial advisors and trustees choose to be fiduciaries, while others are mandated fiduciaries because of their professional designation. Those designations include:
- Certified Financial Professionals: The CFP Board supports a fiduciary standard of conduct, so all advisors who use the CFP designation must uphold fiduciary duty. 
- Accredited Investment Fiduciaries: Advisors who use the AIF designation must commit to fiduciary duty and complete regular continuing education. 
- Registered Investment Advisers: Under the Investment Advisers Act of 1940, any professional who uses this term to identify themselves has a fiduciary duty to their clients. 
Note that the Advisers Act applies specifically to investment advisors. Professionals who use other terms like “financial advisor” or “wealth management advisor” to describe their roles aren’t subject to the same regulations. They’re not legally required to be fiduciaries, but many choose to take on a fiduciary duty to serve their clients better.
Fiduciary Duty vs. Suitability Standard
A fiduciary duty is not the same thing as a suitability standard. The suitability standard is set by the Financial Industry Regulatory Authority and is less strict than fiduciary duty. It simply means that an advisor has to offer recommendations that suit the client’s needs. 
The problem is that, in the world of finance, there are plenty of decisions that would be suitable and only one that would be best. An advisor following the suitability standard could decide not to offer that perfect investment product because another one — one that’s just “okay” — would earn them a higher commission.
Most importantly, under the suitability standard, an advisor doesn’t have to disclose their conflicts of interest. They don’t have to tell you that they earn more by selling you Product B, and they don’t even have to disclose that Product A exists.
A fiduciary, on the other hand, is legally obligated to tell you what the best choice is, even if that product is only available through a different advisor.
The Fiduciary Trust Relationship
Fiduciary duty is also present in trustee relationships, as the trustee holds and manages assets for the asset owner. At Field & Main Bank, for example, experienced fiduciaries manage revocable living trusts, irrevocable trusts and charitable remainder trusts, to name a few. You can view a more thorough list of Field & Main Wealth Management services here.
The fiduciary relationship is hands-on for these trustees. They may directly collect and distribute funds, make deposits, and even apply for certain government benefits. The client needs to know that the trustee should make the best possible decisions for them and their beneficiaries.
Breach of Fiduciary Duty
Whether an advisor selects investments, provides strategic advice, or acts as a trustee, their duty to their clients is a legal obligation. If a fiduciary advisor knowingly or neglectfully acts in their own interests rather than a client’s, they are in breach of duty.
Breach of fiduciary duty can take many different forms depending on the services they provide. For fiduciary investment advisors, common breaches include:
- Misrepresenting the benefits or risks of a product to make a sale
- Making decisions for the client without their knowledge
- Failing to thoroughly research an option before making a representation
- Recommending or facilitating trades primarily to earn commissions
Breach of fiduciary duty puts an advisor at risk of disciplinary action.
Why Choose a Fiduciary Advisor?
There are plenty of financial advisors who are just as ethical and dedicated to their clients as any fiduciary, yet there are benefits to choosing a fiduciary financial advisor.
You Come First
When it comes to law and finance, specificity is key. Anyone can say they act in their clients’ best interests, but it’s hard to know if you and your advisor agree on the definition. The meaning of the term “fiduciary” is clear on that point.
When you work with a fiduciary financial advisor, you know that your advisor is legally required to put your interests before their own. That goes for all fiscal matters that the advisor handles.
A non-fiduciary advisor might make the best decision for you based on their current knowledge, but duty requires a fiduciary to go deeper. Fiduciaries have to do due diligence and make sure their advice is appropriate and relevant.
When your fiduciary financial advisor offers a suggestion or promotes a product, you can feel confident that the recommendation comes from an informed place. No more worrying about outdated knowledge or blanket recommendations that the advisor might give to everyone — a fiduciary considers your situation and finds the best solution.
Fiduciary financial advisors are legally bound to give you all relevant information about their recommendations and the decisions they make on your behalf.
If you don’t have any financial expertise, don’t worry — that doesn’t mean they’ll hand you dense documents full of jargon. A good fiduciary financial advisor should explain what’s going on in language you can understand, making sure you understand everything that happens with your assets.
Potential for Compensation
Breach of fiduciary duty is a violation of the law. If your fiduciary breaches duty, you can file a civil lawsuit and potentially recover some or all of the funds that you would have enjoyed if your advisor had prioritized your interests.
Ideally, you’ll never need to go this route, but it is helpful to know that you have legal recourse.
How Do You Know If Your Financial Advisor Is a Fiduciary?
The best way to find out whether an advisor is a fiduciary is to ask them. If they say no, you have the right to ask why not. Asking this question can give you important information about whether a particular advisor accepts commissions and how that might affect the services they provide.
If you’d prefer to check the advisor’s fiduciary status before you meet with them, there are several online resources that can help. They include:
- The National Association of Personal Financial Advisors database: NAPFA members are all fee-only advisors, meaning that they don’t accept commissions, and each advisor must take a fiduciary oath to join. 
- The Garrett Planning Network: Garrett is another listing of fee-based fiduciary financial advisors. 
- The Find a CFP® Professional Board: Because Certified Financial Professionals have to be fiduciaries, using this search tool can help you to locate a fiduciary financial advisor. 
These are helpful tools for finding fiduciaries in your area, but some fiduciaries won’t appear on listings like these. It all depends on whether the fiduciary has joined a certain organization or, in the case of CFPs, obtained a particular credential.
If you want to know an advisor’s status but can’t find them on any listings, check the bank’s or firm’s website or contact their direct superior if they have one.
Learning About Your Fiduciary Financial Advisor
Choosing a fiduciary financial advisor is only the beginning. It’s important to verify your advisor’s background so you know that they can meet your needs.
Check Their Qualifications
Financial advisors don’t have to pass a test or have any specific background to use the term “fiduciary.” Research the advisor’s background and find out if they have any certifications like CFP® that indicate a certain standard of expertise.
Verify Their Track Record
Clients have the right to inquire about their financial advisor. You might ask your financial advisor about:
- Services offered
- Fee structures
- Conflicts of interest
- Disciplinary and/or legal history
Ask Who Pays Them
Commissions are common conflicts of interest for financial advisors. That’s part of why so many fiduciary financial advisors operate on a fee-only basis. If an advisor doesn’t get commissions, they’re less likely to find themselves in a situation where they have to choose between your interests and theirs.
If your fiduciary financial advisor does accept commissions, ask them how they disclose those potential conflicts.
Your personal finances deserve all the protection you and your advisor can offer. By selecting a fiduciary financial advisor, the two of you agree to put your interests at the center of everything.
Field & Main Bank provides a variety of fiduciary financial services including trusts, investment management, and advisory services. All of our fiduciary financial advisors are here to answer any questions you have and make sure that your financial plan moves you toward your goals, with your values at the center.
Investments are not insured by the FDIC or any federal government agency, provide no bank guarantee, are not a deposit, and may lose value.