Fiduciary Financial Advisor

The quest to find the best wealth manager to work with involves multiple considerations. You need to think about the personality of the manager, the expertise that they bring, their style of working, the cost of their services, the way in which those costs are structured, and their overall service levels. Wealth managers like to discuss portfolio management, risk management, investment returns, credit card management, and asset allocation.

Those are plenty of subject areas in one sentence. Do all the wealth managers who talk about these topics practice them in a way that serves the best interests of their clients? Pillar Wealth Management is one such fiduciary financial advisor, and we can demonstrate how we have been a fiduciary for clients whose liquid assets amount to between $5 million and $500 million. 

“What is a bonded financial advisor, and what makes them different from a fiduciary or generic financial counselor? How can I tell if my financial advisor is a fiduciary? The answer is explained below. Finally, the major strategies in choosing the right financial advisor will be looked at.

Fiduciary Financial Advisor Definition

The high compensation of a wealth advisor assumes that they will act in your best interest when substantial assets are at stake. but if substantial assets are part of your portfolio, there is no guarantee that your advisor will completely act in your favor. Pillar Wealth Management serves customers who have investable assets of $5 million to $500 million.

The choice of a fiduciary financial advisor thus becomes very important. A fiduciary advisor is legally and ethically bound to place your interests first. More details will follow soon on the role and tasks of a fiduciary advisor. For a complete understanding of this topic, the book The Ultimate Guide to Choosing the Best Financial Advisor: For Investors With $5 Million to $500 Million in Liquid Assets is highly recommended.

Fiduciary financial advisors are legally required to prioritize your welfare, when managing your assets, above their own interests. These experts must be registered with regulatory organizations like the SEC (Securities and Exchange Commission), the Financial Industry Regulatory Authority (FINRA), or state authorities to ensure they consistently act in their clients’ best interests. It is also prudent to select advisors who are Certified Financial Planners (CFPs) or are Registered Investment Advisors (RIAs).

For personalized service, consider consulting with Hutch Ashoo or Chris Snyder at Pillar Wealth Management. Their commitment to fiduciary responsibilities significantly shapes their client interactions. Pillar Wealth Management staunchly defends its fiduciary status, even refusing client requests that might compromise these obligations.

How Is a Fiduciary Financial Advisor Paid?

Many fiduciary advisors eschew commissions or performance fees, so that in many cases, they’re purely conflict-free and are paid only by client fees. Some fiduciary advisors, however, can recommend a product that serves the best interest of the client but is paid through a commission from the sale. In that case, the advisor must reveal the conflict of interest to the client.

Does a CFP Have a Fiduciary Responsibility?

A Certified Financial Planner must consistently serve as a fiduciary when providing financial advice or making recommendations. A CFP is required to make the client’s interests a priority and avoid any conflict of interest. If such conflict cannot be avoided, they must make a full disclosure to the client of any interest, direct or indirect, which may be involved and be adverse to the interests of the client, except where the client expressly permits them to omit or limit such disclosure. The CFP will also have a duty to follow the instructions of the client with the highest care, skill, and professionalism.

What is a Fee-only Financial Advisor?

The main categories of remuneration are fee-only, commission-based, and fee-based financial advisors. Fiduciary financial advisors usually fall under the fee-only model, where the advisor’s revenue comes solely from client fees and not from any outside parties in the form of commission, bonus, or performance-based fee. As a result, the model eliminates potential conflicts of interest that the fee-based or commission-based advisor is subject to through a fee model that is a combination of fees and commissions or commissions alone, respectively.
Usually, the compensation financial advisors receive is a percentage fee, based on the value of the assets managed by the advisor. However, some advisors charge fixed fees regardless of the volume of assets, on one end, while there are some who are paid on an hourly basis or charge a fee per service, on the other end.

Fiduciary Duty Versus Suitability Standard

The fiduciary standard that the Securities and Exchange Commission, as a registered financial advisor, will follow is the suitability standard. It includes the process by which the recommended product is suitable to meet the requirements set out by the client; however, it might not be the best available.

Fiduciary duty vs. suitability standard

Having a fiduciary duty means that financial advisors must act in the best interest of their clients. The suitability standard states that a broker-dealer must have a reasonable belief that an investment or transaction is suitable for the customer. The reasonable belief standard allows a broker-dealer to recommend a product from which they derive a benefit, and although it is suitable for you, it may not be the best investment.

Registered investment advisors (RIAs) are legally fiduciaries, but broker-dealers and anyone buying and selling securities need not have a fiduciary duty although they may be more stringently regulated at the state level.

The fiduciary duty requires the advisor to only recommend investments that are in your best interests, meaning that the advisor fully understands your financial situation, needs, and goals. They cannot sell you a more expensive product so that they can benefit from the transaction.

5 Common Misconceptions About Fiduciaries    

1. Anyone can be a Fiduciary

The SEC holds financial advisors to a fiduciary standard, called the suitability standard. The suitability standard requires the advisor to always offer a suitable product that meets the customer’s needs. The product must be suitable but not necessarily the best.

Unlike the investment advisor who can be bound by legal obligations, a CFP should serve their clients’ best interest. Consequently, an ideal product would be the top choice off-the-shelf, meeting the customer’s requirements.

For other fiduciaries, such as lawyers and guardians, their responsibilities may be defined by the law.

2. There Is Always a Test or License

The person acting in a fiduciary capacity does not necessarily have a license or pass a test before being given that role. A fiduciary is a person who is well qualified to work in the best interest of the client. The fiduciary must be a professional in the field and adhere to the code of ethics expected by that profession.

3. Fiduciary Law Is Easy to Enforce

A fiduciary financial advisor must not mislead the client or make false claims. They must not put their own interests first, have hidden fees or charges, or sell the client something they don’t need. If a client suspects unacceptable behavior, they can initiate a lawsuit.

However, while we hold financial advisors to a high standard, unethical behavior may be difficult to prove. Moreover, unforeseen events may result in poor investment performance even when the advisor adheres to a strict fiduciary standard.

4. Being A Fiduciary is like a Guarantee

Investment firms include a caveat in the documents they issue to customers, stating that any investment can result in a loss of capital, or no gains. The fact that a financial advisor is a fiduciary does not guarantee any particular level of earnings even if we know, for example, that the stock market always rises.

5. Fiduciaries Cannot be Dishonest

As the saying goes, everyone makes mistakes. Unfortunately, some bad actors misbehave intentionally. Unethical financial advisors may put their own interests first, out of greed and egoism (e.g., Bernie Madoff). Therefore, before you decide to work with a particular advisor, do some research to ensure the advisor has not misbehaved in the past.

5 Ways to Tell If Your Financial Advisor Is a Fiduciary 

Whether or not your advisor is a fiduciary can significantly impact the success of your financial plan. Here are five ways to tell if your advisor is a fiduciary.

Ask them directly

It couldn’t be simpler. Ask your advisor if they adhere to a fiduciary standard, and ask for examples.

A fiduciary advisor should be able to explain the steps they would take to ensure the advice they provide is not a source of conflict but is solely in the clients’ best interest—such as disclosing any conflicts or suggesting investment alternatives that do not benefit the advisor financially. This level of transparency builds not only trust but reveals the advisor’s commitment to their fiduciary duty.

Review the advisor’s credentials

Certain designations in the profession carry a fiduciary responsibility that underscores the financial advisor’s dedication to acting in favor of the client. The Certified Financial Planner (CFP) designation, for instance, is granted only to advisors who agree to adhere to a fiduciary standard. This means a CFP has to place the financial goals and needs of their clients before their own or their firm’s interest.

Examine their fee structure

Fiduciary financial advisors are not compensated with commissions from product sales, and therefore, no conflicts of interest can arise, leaving the advice unbiases and focused on the best interests of the client. Typically, a fiduciary operates on a fee-only basis, meaning their income derives solely from fees paid by the client and not commissions or kickbacks from third parties.

The structure of such fees should be presented in a clear, transparent format so the client understands what they’re paying for to the last cent, without there being any hidden charges or suspicion of a conflict of interest. This transparency it engenders trust and helps in building a strong, long-term relationship between the client and advisor.

Research their registration

By registering with the SEC as an investment advisor (or a Registered Investment Advisor—RIA), that person becomes subject to a fiduciary standard and is supposed to act in the best interest of the clients, placing clients’ interests ahead of their or their firm’s financial gain or any conflicts that could arise. This fiduciary duty ensures the firm or advisor provides forthright, individualized advice and recommends investments that would best serve their client’s interests in meeting their needs and objectives.

In contrast to RIAs, not all financial advisors, including some who are overseen by the Financial Industry Regulatory Authority (FINRA), are required to meet this high standard; for instance, brokers are typically held to a suitability standard which only requires that recommendations be suitable, not necessarily optimal. Certified financial planners (CFPs) and other financial professionals, while also adhering to ethical and professional standards, may have different obligations depending on their regulatory body, highlighting the unique position of RIAs under SEC regulations.

Request a written commitment

A true fiduciary advisor, working in your best interest, can provide a written document that articulates their fiduciary duty with crystal clarity. This document is meant to be a formal agreement between you and your advisor, ensuring that the advisor is held, by law, to put your financial well-being above their own.

A word about how fee structures can affect decision making

The wealth management field has two general compensation models. The first is a fee-based model where the wealth manager is remunerated in the form of fees and commissions. Part of the fee would be determined either on an hourly rate basis or by a pre-decided milestone-based understanding. So, if there are certain assigned hours to be spent on some task, then that number of hours is multiplied by the hourly rate and invoiced. In the milestone approach, the pre-decided amount of the milestone is released after the completion of the milestone.

A commission can be a cut paid to the advisor by the company providing the product when the client buys a certain financial product. Such commissions can incentivize advisors to “push” clients to opt for certain products over others. The downside is that the client ends up investing in/buying the product even when there is no real need to do so.

A fee-only structure solves the problem of commissions by completely excluding them. A fee-only advisor is paid only through fees. Whether the fees are based on an hourly rate, milestones, or a percentage of the assets under management, that is all there is. So, the advisor can always provide advice that is in the best interest of the client. There are no distractions like commissions, and the only financial incentive is to do what is best for the client so that the client recommends the wealth manager to others. In many cases, a fiduciary wealth manager adopts a fee-only compensation model.

Why Working with a Fiduciary Financial Advisor Is Important

Having a fiduciary duty means having to work in the best interests of the other party (client in this case of financial advisory relationship).

The fiduciary advisor must be free of any conflict of interest, that is, not taking part in commissions or bonuses he might get from selling such and such a product. He has to recommend the best products on the market that will serve the client.

The fiduciary advisor has to disclose fully any conflicts of interest to ensure the best decision is made for the client. The advisor must act with skill and care and always adhere to the wishes of the client in the work conducted on their behalf.

On the flip side, the non-fiduciary advisor is only supposed to recommend to the client the products the customer needs, but not that they are necessarily the best in the market.

How can I know my advisor is a fiduciary financial advisor?

To identify a fiduciary financial advisor, you can search websites for references to the word “fiduciary.” If you have $5 million to $500 million in investible liquid assets, you can get more details on how to choose the best fiduciary financial advisor by reading this authoritative guide prepared for high net worth and ultra-high net worth individuals.

A very direct way is to just ask. If you’re going to have a one-on-one introductory meeting (which we highly recommend once you have shortlisted the most promising advisors), then you can ask about the advisor’s fiduciary status during that meeting. Also, a good fiduciary financial advisor should have a fiduciary duty whenever he acts as a broker-dealer. We also encourage you to schedule your free consultation with Pillar Wealth Management to discuss anything related to wealth management and being a advisor.

What is the difference between a generic advisor and a fiduciary financial-advisor?

A financial advisor is an individual in a trusted position. A fiduciary is a kind of financial advisor who serves in that capacity. That’s a choice the financial advisor has to make. Call Hutch Ashoo to discuss why Pillar Wealth Management chose to be a fiduciary.

“Financial advisor” is a generic term used to describe any professional who provides advice on all sorts of financial matters. The services may cover investment management, tax planning, retirement planning, risk management, and estate planning. But a fiduciary is someone who manages assets for the benefit of his clients, while a non-fiduciary acts to make a profit for himself. The only benefit the fiduciary derives is the fee which they earn.

Before you choose a financial advisor, determine if you want a human financial advisor or a robo-advisor. If you want to get investment advice from professional financial planners, you would like to be sure that they will always be open about potential conflicts of interest. Because a conflict of interest can affect your financial performance and future planning.

A fiduciary financial advisor has the responsibility to provide impartial advice for the benefit of the client. For example, suppose the client needs to decide whether to invest in a low-cost passive fund or an actively managed higher-cost fund. The advisor is in a position to point out if it makes sense to go for the passive fund offering lower returns since it meets the client’s financial goals. You should not be left in doubt, wondering if the advisor recommends a high-cost fund simply to end up with a commission from the fund company.

We discuss this topic in this guide on improving portfolio performance for investors with $5 million to $500 million in investible liquid assets. A fiduciary will also generally point out multiple aspects of a seemingly simple decision, which may be affected by the decision. Anything in the best interests of the client is covered.

How to choose the best fiduciary financial advisor

If an individual is convinced of the need for a working relationship with a registered fiduciary financial advisors, they will start looking for such advisors. But what if you find many such advisors? How do you ensure you are choosing the very best fiduciary financial advisor? You are just about to entrust the fiduciary financial advisor with your hard-earned wealth. The stakes are high, and every decision may have a consequence worth millions.

One way is to analyze the reputation of the advisor. Has the advisor successfully worked with high net worth portfolios? Working with a portfolio worth $50 million requires specific skills compared to working on a $1 million portfolio. You want an advisor who understands your niche profile. The track record of the advisor, the testimonials of the clients, and the general reputation can give you insights. The number of years of experience is also a key indicator as it can signal consistency in service levels.

Secondly, you can ask family members, relatives, and friends about any good fiduciary advisors that they work with or know of. Your personal network, including your business colleagues, work colleagues, suppliers, partners, or anyone who is in the same income profile as you, may be aware of advisors who specialize in working with high net worth individuals. Plus, they are more likely to give you an honest review.

Advisors that are registered board members should met the fiduciary standard. Fiduciary advisors may be responsible for financial issues such as assets management for a person or an organization. Some professionals should have a fiduciary responsibility, such as financial advisors, money managers, accountants, corporate officers, and so on.

Most importantly, figure out what you really want out of working with a fiduciary advisor. Know what your goals are, what your expectations are, and then look for an advisor, including an investment advisory firm. We discuss this need for introspection in our short guide on the five critical shifts for maximizing portfolio growth for individuals and families with $5 million to $500 million in liquid assets.

What is expected of a fiduciary?

A fiduciary advisor must act only in your best interest. They must reveal any conflicts of interest and how they manage those conflicts. They can be expected to act in good faith and with transparency regarding their investment advice and the fees they charge for the services they provide.

Are All Financial Advisors Considered Fiduciaries?   

 A fiduciary advisor always follows the best course of action in the interests of the client. They have a duty of care, loyalty, confidentiality, and prudence. They will focus on what matters most to the client. This may not be the case for all other planners.           .

Is a Robo-advisor a Fiduciary?

Some robo-advisors are considered fiduciaries, with a registration filed with the SEC, However, a robo-advisor is not able to understand the investor’s unique financial situation. So, in that real sense, these are not fully a fiduciary duty, as they don’t have human perception.

What Is Fiduciary Duty?

Fiduciary duty means having a duty to act in such a manner as will benefit another person, mostly financially. The person owing the duty is the fiduciary, and the person to whom the duty is owed is referred to as the principal or the beneficiary.

The major duties of the fiduciary include the duty of care and the duty of loyalty. Duty of care is a duty toward the beneficiary of having sound judgment and protecting the beneficiary’s interests, such as making a thorough analysis of options in decision-making.

The loyalty duty requires acting at all times in the best interests of the beneficiary, always bearing in mind that which would be in the interest of the beneficiary, for example, scenarios where the trustee is responsible for certain actions.

What Happens If Fiduciary Duty Is Breached?   

If your advisor is a fiduciary and you perceive him to have betrayed you morally, you should terminate the relationship. Breach may occur when an adviser makes false statements regarding stock trades or executes a trade without your permission. A breach has occurred if the adviser gains from the recommendations made.

Also, in case you hava a monetary loss, you can file a civil claim to recover the loss.

If your complaint is validated, you could be compensated, and your advisor could be disciplined, with a punishment of paying fines or being disbarred.

Types of Fiduciary Relationships

• Guardians undertake certain legal duties, where they have to work in the best interests of their wards. Thus, they are deemed to have fiduciary duty. This is essential because a minor, or ward, cannot make decisions alone.
• The board members of a corporation are required to act as fiduciaries since the board manages the corporation on behalf of the shareholders, who are considered the owners of the firm. Thus, the shareholders, as company owners, expect the board to handle their investment to the best of their abilities.
• Lawyers have to ensure their clients’ protection and defense, and in that sense, they are fiduciaries.

What Separates a Fiduciary Advisor From Other Planners?

A fiduciary advisor always follows the best course of action in the interests of the client. They have a duty of care, loyalty, confidentiality, and prudence. They will focus on what matters most to the client. This may not be the case for all other planners.

Pillar Wealth Management is a niche fiduciary fee-only advisor

Pillar Wealth Management is an exclusive wealth management firm, serving a clientele of ultra-high-net-worth individuals or families holding investible liquid assets between $5 million to $500 million. The firm differs from the big-name listed companies that focus on growing their assets-under-management numbers. In fact, Pillar took on only 17 new clients last year.

However, the advisors at Pillar Wealth Management know their clients by their first names; they know what their motivations are, what their goals are, and how every decision impacts the journey towards those goals. Pillar Wealth Management also makes a unique commitment to saving the client $100,000 for every $10 million in assets brought in. The firm values investment costs as much as it values returns. Pillar also regularly stress tests all client portfolios and simulates 1,000 scenarios to check whether the portfolio can hold up during events like the 2008 recession or the COVID pandemic.

Hutch Ashoo and Chris Snyder are the expert founders of the independent, fee-only, fiduciary wealth management firm Pillar Wealth Management. If you would like to speak with them or simply ask a question or get information about the customized and trusted wealth management advice offered to high net worth individuals with $5 million to $500 million in investible assets, then feel free to start a conversation.

Pillar Wealth Management, all rights reserved, advertiser disclosure.

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