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Fiduciary 101: How to Find Your Best-Fit Wealth Management Advisor

wealth legacy planning denverThere is no way around it. Money makes us anxious. We want to ensure we have enough to live in the present, and enough to live through retirement. To make this happen, many of us seek financial advice. When selecting a personal financial advisor, it’s best to be thorough, attentive, and particular to ensure our goals are met.

Maybe you’ve heard some of the horror stories about innocent and sophisticated investors who’ve lost their life savings due to poor financial advice. Perhaps the financial advisor sold you an annuity so he or she could increase their own commissions. Or the financial sold you securities that were not suitable or in alignment with your investment objectives. Regardless of the situation, the end results are undesirable and not acceptable. We want to avoid these situations and show you how.

To avoid predatory financial advice, it’s critical to understand how you can find your best-fit wealth management advisor.

What Are the Different Types of Financial Advisors?

First, let’s discuss the types of financial advisors you may encounter as you research how to manage your money, or as you receive referrals from friends and acquaintances.

Though the term personal financial advisor is broadly used, you might be surprised to learn that there are many different types of advisors, and even more surprised to learn they aren’t all created equal.

Advisors by fee structure

To uncover your personal financial advisor’s agenda, learn what type of payment structure they operate from:

  • Fee-only advisors: Act under fiduciary responsibility. This means they are legally required to act in your best interest. Fee-only advisors collect a pre-agreed upon fee in exchange for financial advisory services. They don’t earn a commission based on product sales, which minimizes conflicts of interest, and allows you to receive more objective and comprehensive advice.
  • Commission-based advisors: Earn their income based on the products they sell, such as annuities. The accounts they open are commission-based. This compensation structure encourages behavior that may not be in your best interest.
  • Fee-based advisors: These advisors blend between Fee-only and Commission-based structures. The advisor collects a pre-agreed upon fee in exchange for financial services AND commissions on the products they sell. These advisors play both sides, but will “claim” to be independent and fiduciaries.

How do you cut through the noise?

Simply ask your prospective personal financial advisor if they hold a Series 6 or 7 license. A “yes” to either license means he or she is in the business of sales, and you are not working with a fiduciary at all times in all transactions. I would walk away from that salesperson.

What Characteristics Should My Financial Advisor Have?

Use these seven ‘C’s’ as a valuable checklist to assess whether or not you’ve met your financial advisor match:

  1. Competence: What is your prospective advisor’s experience and training, and how does it fit with your needs?
  2. Credentials: The initials “CFP®” (Certified Financial Planner) indicate the advisor has successfully achieved the industry’s gold standard (a good sign.) Other professional designations to look for: Chartered Financial Analyst (CFA® ), Chartered Financial Consultant (ChFC®), and Chartered Life Underwriter CLU®.
  3. Clean record: View complaints (if any) filed against your prospective advisor at AdvisorInfo.SEC.gov.
  4. Client service: Your advisor should meet with you once or twice a year, and make appropriate modifications to your financial plan to keep your money growing. Read Money Secrets: Keys to Smart Investing to learn the specific updates you should expect from your financial advisor.
  5. Communication: Ensure your advisor will communicate with you through your preferred medium, whether that’s in-person or digitally.
  6. Commitment to professional standards: Learn how you can tell if a financial advisor is committed to ethical behavior and high professional standards.
  7. Chemistry: In addition to handling your money competently, does your wealth advisor connect with you, or talk down to you? Are you comfortable discussing your fears, dreams, aspirations, and goals for the future?

At the end of the day, your personal financial advisor should make you feel more in control of your financial future, help you stay on track to meet your goals, prepare you to handle unexpected financial events, and empower you with a rock-solid understanding about financial issues.

What is a Fiduciary?

Very few personal financial advisors—less than 10 percent—are legally obliged to have your best interests in mind. Those who fall within that 10 percent are called fiduciary advisors, and they have taken an oath to act within your best interest.

Specifically, The Securities Exchange Commission (SEC) identifies five responsibilities of fiduciaries:

  1. Put clients’ interests first;
  2. Act with the utmost good faith;
  3. Provide full and fair disclosure of all material facts;
  4. Don’t mislead clients; and
  5. Expose all conflicts of interest to clients.

Before working with a financial advisor, ask this person to sign a pledge that he or she will act as your fiduciary at all times and with all transactions. If your advisor is hesitant to sign the pledge, it may be a red flag that they are unwilling to operate based on your needs.

What Will a Fiduciary Advisor Do for Me?

Fiduciary advisors take a holistic look at you, not just your net worth, to discuss appropriate, customized strategies that will work for you.

More specifically, a fiduciary advisor will help you do the following:

  • Pinpoint your ultimate financial goals
  • Help you determine how much money you will need to meet your goals
  • Determine where your financial starting point is
  • Help you understand the potential roadblocks that exist between your envisioned destination and the reality of getting there

Specifically, a fiduciary advisor will help you build a comprehensive personal finance and wealth management plan by drilling down on the six key elements of a solid financial plan:

  1. Cash Flow
  2. Insurance
  3. Investments
  4. Tax Strategy
  5. Retirement Planning
  6. Estate Planning

Learn which fiscal details are included within each of the six key elements in Money Matters.

Additionally, our Denver wealth management firm Wealth Legacy Institute implements the Humanigraphix process that helps you reimagine the way you think about finances by putting it into a larger picture. For example, we examine what your relationship with money has been like in both a current and historical context and in reference to your family history? What habits do you need to refine to meet your ultimate goals?

Creating a financial plan based on your goals, starting point, relationship with money, and your personality, is essential to building an investment portfolio that will meet your overall financial goals.

How Do I Find a Fiduciary Advisor?

The easiest way to find a fiduciary advisor in your area is to search the listings on the National Association of Personal Financial Advisors website. If you’re looking for Denver-based retirement planning, Kim Curtis and her team at Wealth Legacy Institute partner with clients to form fiduciary relationships, provide unbiased advice, and create viable long-term personal finance plans to help their clients reach their financial goals.

For more tips on developing a long-term relationship with a qualified investor, read Money Secrets, written by Wealth Legacy Institute’s CEO Kim Curtis.

Get Your Copy of Money Secrets Now!

 

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