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The F Word

Provocative title, wouldn’t you say? Of course, I’m referring to the only 'F-word' that a financial advisor calls themselves when they are ethically and legally bound to put their clients interests ahead of their own - fiduciary.

Here’s why it matters to you: imagine you and your partner are sitting down with a financial advisor. The advisor has guided you through a thorough analysis of your financial life as it relates to your values and goals. As a result of the analysis, they are recommending you open an account with them and invest in some mutual funds that will help you meet your long term goal of becoming financially independent at age 65. Sounds reasonable, right?

You and your partner get home and google the mutual funds that were recommended. It turns out that not only are these mutual funds nearly identical to widely available low cost index funds, but they are several times more expensive to own and the advisor has been incentivised with commissions to sell the funds to you. Does this still sound reasonable?

While most financial advisors will do right by their clients, regardless of their fiduciary status, this is one of many scenarios where a non-fiduciary advisor can provide conflicted advice and put your life's hard work at jeopardy in exchange for their financial benefit.

Financial Engines, a financial services firm for workplace solutions and advocate for industry transparency, suggests these questions to ask your current or potential advisor and what to look for in their answers.

  • Are you a fiduciary? A direct question deserves a direct answer. Pay attention to how the advisor responds. If your advisor has told you that he or she is acting as a fiduciary, ask them to show that to you in writing.
  • Do you receive any type of compensation in addition to what I’m paying you? Some advisors receive commissions or other product-based compensation when they steer clients into particular investment products (such as mutual funds, annuities and variable annuities). This is a clear conflict of interest and can indicate that the advisor is not, in fact, a fiduciary. Make sure your advisor is providing unbiased advice and not simply selling you investment products.
  • Are you “dual-registered”? Some advisors are registered as both investment advisors and broker-dealers. Often, a broker-dealer is acting in the role of salesperson. If your advisor is also a broker-dealer, make sure you understand which hat they are wearing when providing advice to you.
  • Have you ever been cited by a professional or regulatory organization for disciplinary reasons? To be extra sure, you can look up the advisor’s records on FINRA’s BrokerCheck to find out if they have any complaints. Keep a close eye out for complaints related to providing financial and advisory services.

In response to the growing public demand for, and trust in, real fiduciary financial advisors, I hereby submit to you my fiduciary oath:

I will always put your best interests first.

I will act with prudence; that is, with the skill, care, diligence, and good judgment of a professional.

I will not mislead you, and I will provide conspicuous, full and fair disclosure of all important facts.

I will avoid conflicts of interest.

I will fully disclose and fairly manage, in your favor, any unavoidable conflicts.

Signed - 

Thoughts or comments? Send me a note, I’d love to hear from you!

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