How to Know if a Financial Advisor is a Fiduciary

Do you want to know if your financial advisor is a fiduciary? Just ask. The easiest way to find out if your advisor is a fiduciary is simply to ask. If your advisor says they’re not a fiduciary, ask why. The advisor should offer a clear, concise and logical explanation. They also should be willing and able to spell out how they work with clients and what rules apply to the advice they give.

You should also ask how the advisor is compensated. A complicated fee structure is often a red flag. Likewise, think twice if the advisor earns most of their money from commissions on the investments they sell.

Know the different types of advisors. Here are some common types of advisors who are likely to be fiduciaries:

 Investment advisors who work with retirement accounts are now held to the Department of Labor (DOL) fiduciary standard. These advisors must disclose all fees and conflicts of interest. They cannot recommend products that represent a conflict within retirement accounts.

 Fee-only financial planners charge a flat fee or a fee based on the percentage of assets they manage for you. Fee-only financial planners may also charge you a flat fee every year regardless of the assets they manage for you. They don’t accept commissions for the products they recommend. Many fee-only advisors voluntarily adhere to fiduciary standards, and those who are also investment advisors must do so by law.

 Broker-dealers are regulated by the SEC, however they are not required to be fiduciaries. Rather, they are held to the “suitability standard” meaning they only have to prove that an investment is suitable for their client at the time of its purchase, not that the advice was in the client’s best interest. Broker-dealers typically earn a commission on sales of investments.

Tax professionals and insurance brokers are not held to a fiduciary standard.

Know advisor designations:

You may have noticed that many advisors list abbreviations after their names. These letters represent professional designations, which can provide insight into advisors’ fiduciary status. Here are a few common designations:

Certified Financial Professionals (CFPs) are held to a fiduciary standard by the CFP Board of Standards. CFP fiduciary standards apply to a broad scope of financial planning, including retirement, tax and insurance advice.

Chartered Financial Consultants (ChFCs) are held to a fiduciary standard by the American College of Financial Services’ Code of Ethics. The ChFC designation covers the same core curriculum covered by the CFP designation plus additional electives that focus on areas of personal finance.

Here at Shore Financial Planning (SFP) we are a fee-only, fiduciary wealth management firm located in Monmouth Beach, New Jersey. We specializes in tax-focused wealth management that involves playing an active role not just in investment management, but integrating it with estate planning, insurance, retirement planning, business planning, goal setting, education planning, and also tax planning and tax preparation. Tax-Focused Investment Management can enhance returns through minmimizing taxes. We minimize taxes by focusing on investment location, gain/loss harvesting, charitable giving and passive investing. Over time these strategies help clients pay less taxes and enhance their overall investment returns. Shore Financial Planning’s tax department is lead by Joseph Vecchio CPA, a New Jersey Certified Public Accountant (CPA) and the firm has a total cumulative 60+ years of tax experience.