May 2, 2023

What is a Fiduciary Investment Advisor?

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A fiduciary, in any circumstance, is a person who is morally or legally obliged to act in the best interests of another party. This is considered the highest standard of care under the law. As such, a Fiduciary Investment Advisor is a professional who manages assets for clients and is required by law to act in their best interests. This means that they must put their clients’ interests ahead of their own and disclose any potential conflicts of interest.

It is important to note that not all financial advisors are fiduciaries; there are many non-fiduciary advisors who follow the much less stringent suitability standard.

A non-fiduciary financial advisor is not legally required to act in their clients’ best interests. Unlike the fiduciary standard, the more lenient suitability standard requires only that a financial advisor make recommendations that can be argued as suitable for the needs of the client, even if they are not the best choice for the client’s financial situation.  As such, this permits non-fiduciary advisors to recommend products that will increase their bottom line through commissions but may not necessarily be the best investment for you. Fiduciaries, as mentioned, must act in your best interest. This is just one reason why it can be safer to work with a fiduciary rather than an advisor who is simply following the suitability standard.

The fiduciary duty is a professional commitment. For instance, an advisor with the Certified Financial Planner designation (CFP) is bound to the fiduciary standard by the Code of Conduct of the National Association of Personal Financial Advisors (NAPFA).

The Benefits of Working with a Fiduciary Investment Advisor

Working with a fiduciary investment advisor has numerous benefits in addition to being duty-bound to put the interests of their clients ahead of their own interests.

In general, they tend to have fewer conflicts of interest. But if a potential conflict of interest were to arise, they have a legal obligation to disclose that to their client. 

Importantly, fiduciaries provide objective advice and greater transparency. Fiduciaries must thoroughly discuss their recommendations with their clients, presenting to them all pertinent facts and information. In addition, when working with a fiduciary, there will be greater clarity about how the advisor is paid.  Fiduciaries are more likely to work on a fee-only schedule. A fee-only investment advisor is compensated solely from fees you pay. These fees could be in the form of a percentage of the assets under management, or flat fees paid in advance. Unlike non-fiduciaries, they don’t receive any commissions for selling you certain investment products.

All these factors can make it easier to ensure you understand the recommendations regarding your particular situation, as well as providing peace of mind in the knowledge that somebody is looking out for your best interests.

When engaging with an investment advisor, it is crucial to find out if they adhere to the fiduciary standard. As discussed, a fiduciary must meet much more stringent obligations than someone working under the suitability standard, and always put your interests first. In the end, when it comes to establishing a relationship with an investment advisor to manage your hard-earned money, you should find someone you feel comfortable placing your trust in.

At Canter Wealth, we’re committed to providing our clients with transparent, unbiased investment advice that’s tailored to your unique financial goals. All Canter Wealth advisors are fiduciary investment advisors, Certified Financial Planners (are pursuing their designation), and charge on a fee-only basis.