By Jay Shareef and Chris Rhoads
There are financial advisors everywhere you turn. The problem is not finding one, but finding the right one—someone you can trust to provide honest advice and help you achieve your goals.
That’s easier said than done. The reality is that no matter what someone calls themself—be it financial advisor, financial planner, wealth manager, or financial consultant—it doesn’t tell the consumer anything about the standard to which they are held. This can be incredibly confusing for many people. When it comes to financial advisors, it’s important not to look for a particular job title but to ask your current or prospective financial advisor whether or not they are held to the fiduciary standard.
Terms, Defined
If you’ve ever researched financial advisors, you may have noticed there are many different types of advisors from which to choose. Some of the most common types of financial advisors are brokers, fee-only fiduciaries, and independent financial advisors. It’s important to know the standards each type of advisor is held to as you’re deciding who to hire.
In a nutshell:
- Brokers manage your portfolio but also sell financial products such as mutual funds or insurance policies, for which they earn a commission. They are not held to a fiduciary standard.
- Fee-only fiduciaries may charge a flat fee, or a percentage of your portfolio, but they are always held to a fiduciary standard, in which they are required to act in your best interest.
- Independent financial advisors have started their own financial firm. Most independent advisors act as fee-only fiduciaries, but some may act as fee-based advisors and sell additional financial products on a commission basis.
More About Fiduciaries
In general terms, a fiduciary is a person or entity who has the power to act for another in situations that require complete trust. When it comes to the financial industry, financial advisors who work for a registered investment advisor firm must always act as a fiduciary for their clients. By law, a fiduciary advisor must be completely transparent and always act in their clients’ best interest. They are also obligated to avoid and disclose any potential conflicts of interest.
Additionally, the ongoing services and investment monitoring they provide also falls under the fiduciary duty. In other words, their job doesn’t end after the initial meeting or purchase. They must regularly review your accounts to help ensure your investments are in your best interest.
There are financial professionals whose services do not fall under the fiduciary standard. This doesn’t mean that they are out to steal your money and can never be trusted—far from it. These financial professionals who register with FINRA are held to a standard known as Regulation Best Interest (Reg BI). This is a step in the right direction, but doesn’t take things as far as the fiduciary standard for financial advisors who work for a Registered Investment Advisor firm that registers directly with the Securities and Exchange Commission.
Why Should I Work With a Fiduciary?
There are several benefits to working with an advisor who serves in a fiduciary capacity. For one, they are open and transparent. Aside from the obvious goal of maximizing value for your money, working with a fiduciary can help give you confidence that your advisor is working in your best interests. They’ll give you their true, professional opinion (even if it’s not the answer you want to hear). This is extremely valuable when you’re facing a big life decision, whether it’s purchasing a second home, transitioning into consulting work, or retiring earlier than anticipated. Reviewing your entire financial picture, an advisor can show you the impact a decision may have on your future and how you can pursue certain goals.
By working with an advisor who holds to the fiduciary standard, your confidence can increase in regards to your financial future. Clients have the power to ask questions and to demand the highest value for the service that advisors are providing. As a Registered Investment Advisor firm, we understand people’s reservations or even negative connotations toward 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 and putting your interests above our own.
Comprehensive Coordination
Independent fiduciary advisors do so much more than just pick your stocks. Working with an experienced financial professional can be a realistic sounding board to help provide a litmus test when you have questions or face a big financial decision. They actively coordinate the accumulation, distribution, and transfer of your wealth, as well as between the estate, tax, and financial planning areas of your retirement plan. An advisor who looks at the big picture of your financial life can help you optimize income and mitigate taxes in retirement.
For example, this type of advisor helps you create a retirement income plan that strategizes when you take your withdrawals and what accounts you take them from first; not to mention, they also design a Social Security strategy that optimizes your benefits, minimizes Medicare confiscation, and addresses long-term care so you can feel confident that you’re on the right track as you pursue your long-term goals. The objective advice of an independent fiduciary advisor can make an incredible impact on your financial situation in retirement.
Do I Need a Fiduciary?
The answer to this question depends on what you want. If you desire to feel empowered to make the best decisions for yourself and your finances, the answer is a resounding yes. You need an advocate, not a salesperson.
We at WealthFlow Financial pride ourselves on being fiduciaries and upholding the highest integrity. Whether you’re looking for an advisor for the first time or have been burned by bad financial advice in the past, we’re here to help you create a solid plan that helps you achieve your goals, using customized strategies that are created through a true partnership. If you want to feel empowered to make the best decisions for your money, reach out to us at (301) 798-5250 or schedule a phone call now.
About Jay
Jay Shareef is vice president, financial advisor, federal benefits consultant, and co-founder at WealthFlow Financial. As a U.S. Army veteran, Jay is passionate about helping federal employees create a bulletproof plan for retirement and navigate the often confusing and complicated federal benefits landscape. He spends his days educating and providing clients with unbiased insurance benefits and retirement strategies to help his clients create guaranteed income for life. As a problem-solver and trustworthy resource, Jay always puts his clients and their needs first so they can find financial peace of mind. To learn more about Jay, connect with him on LinkedIn.
About Chris
Chris Rhoads is a co-founder and vice president of WealthFlow Financial. As a registered investment advisor and independent financial professional, Chris is committed to helping his clients in retirement and he takes a holistic approach to financial planning that includes insurance and risk management, investments and wealth management, retirement income planning, and estate and tax planning. Chris has been married to his wife, Tia, since 2009 and they live in Frederick, MD, together with their two young daughters. In his free time, Chris enjoys traveling, watching sports, and being active in causes about which he cares passionately. To learn more about Chris, connect with him on LinkedIn.