The financial sector is full of confusing jargon that doesn’t only relate to philosophies and investment products but also extends to professionals. For instance, financial advisors can be fiduciary or non-fiduciary, a distinction that is critical to understand if you’re seeking expert fiduciary wealth management. If your wealth exceeds $5 million, get a head start by reading our guide titled 7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning. If you’re ready to hire a fiduciary wealth manager, get in touch with Pillar Wealth Management, a reputable wealth management firm serving investors with $5 million to $500 million in liquid assets.
STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning
The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.
Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.
Table of Contents
Meanwhile, let’s get some insight into expert fiduciary wealth management, starting with answering, “Can I trust a fiduciary?”
Can I Trust a Fiduciary?
Before you can determine whether a fiduciary can be trusted, it’s critical to understand what a fiduciary is. A fiduciary is a legal entity or person, such as an advisor, financial firm, or bank, that possesses the responsibility and power of acting on behalf of the principal or beneficiary in situations demanding honesty, total trust, and good faith.
The most common fiduciary is a trustee, who serves as a custodian for the assets in a trust. They administer and manage the finances in the trust based on the directions given to them. However, “fiduciary” is a broad term. It encompasses any situation in which you place total trust and confidence in someone who undertakes to assist you with something and has a duty to you. Real estate agents and attorneys are fiduciaries for their clients, as are corporate officers for their shareholders. Similarly, some financial advisors or wealth managers are fiduciaries for clients.
Let’s come back to your concern, “Can I trust a fiduciary?” When you enter a fiduciary relationship as a beneficiary, you give the fiduciary advisor discretionary authority over your assets, allowing them to conduct the sale and purchase of securities on your behalf without obtaining your approval before each decision. This discretionary authority is what sets them apart from their non-fiduciary counterparts.
The reason you should trust a fiduciary is that they’ll always act in your best interests, even if doing so conflicts with theirs. For example, if a fiduciary is in a situation where suggesting a financial product that’s the best option for the client leads to no or reduced compensation for themselves, they’ll proceed to recommend the product. Moreover, they will never suggest an investment product that’s more expensive than another identical product or is not beneficial for you.
On top of that, the Securities and Exchange Commission states that a fiduciary duty also involves acting in utmost good faith and with undivided loyalty, ensuring fair and full disclosure of the facts that a reasonable investor would consider important, avoiding any conflicts of interest between themselves and the client, disclosing any unavoidable conflicts of interest to the client, never misleading the client, and not utilizing the client’s assets to the benefit of other clients or themselves.
Your fiduciary will constantly monitor your financial situation and investments and abide by the best practices of conduct throughout the fiduciary relationship.
But you might still be wondering what compels a fiduciary to abide by the aforementioned duties. According to the SEC, a fiduciary who departs from the specified fiduciary standard is committing fraud. When this happens, the registration of the advisor or firm will be revoked; they’re banned from the industry or can no longer offer advisory services, and hefty penalties might be imposed on them, including disgorgement of potentially millions of dollars.
Hence, the responsibilities of a fiduciary are both legal and ethical, and you have avenues for legal action if they breach their duty. A fiduciary duty breach can include negligence, making false statements to misrepresent a transaction or security, conducting unauthorized trading with your account, and trading heavily to churn your account to generate commissions.
Keeping in mind the duties and penalties for duty breaches on a fiduciary’s part, you can safely trust them with even the most sensitive financial information and decisions. To learn more about whether you can trust a fiduciary, schedule a video consultation with our wealth managers at your convenience.
Many people turn to Certified Financial Planners (CFPs) to seek expert advice. If this sounds like you, you might be asking “Is a CFP a fiduciary?” Let’s find out:
Is a CFP a Fiduciary?
Before going into whether or not a certified financial planner is a fiduciary, it’s important to understand what a CFP is. There exists a myriad of professionals in the financial advisory industry. Among them, those with the CFP designation represent the gold standard.
To qualify to be a CFP, these individuals undergo a rigorous certification process involving professional experience requirements and clearing an exam. Before they can be called a CFP, they need to complete 4,000 to 6,000 hours of training. Even after receiving the certification, they’re obligated to continue their education.
The goal of a CFP is to help clients set and accomplish their short- and long-term financial goals, such as preparing for retirement, saving for college, increasing the impact of their charitable giving, navigating debt repayment, and so on. To help clients, CFPs may possess additional professional credentials, such as certified public accountant (CPA), and some specialize in specific areas, such as estate planning, tax planning, or investments.
Coming back to answering your question, CFPs must comply with a strict standard of fiduciary duty. This means they’re required to prioritize clients’ best interests over their own. Thus, they can’t buy a financial product for clients just because they’ll get a high commission. That product must also be the best option for the client. Some CFPs don’t even have the authority to make decisions on their clients’ behalf. All they can do is provide suggestions to clients.
In fact, the fiduciary duty of a CFP professional is typically higher than what’s demanded by regulation. This is because they’re expected to deliver a duty of care, duty of loyalty, and duty to follow the instructions of the client. If you’re a high net worth individual with more than $10 million in liquid assets, we suggest going through this guide before hiring a fiduciary wealth management expert.
How Much Does a Fiduciary Financial Advisor Cost?
To understand how pricing works for a fiduciary advisor, you’ll need to study how financial advisors normally charge their clients.
Financial advisors receive compensation in the form of commissions, advisory fees, or a combination of both. Those who charge an advisory fee only are called fee-only advisors. They charge an hourly or flat rate, which is either a percentage of the assets they’re managing or is applied per service.
The compensation they receive has nothing to do with the investment options they suggest, so they don’t earn trading fees or commissions. One great benefit of working with these fee-only advisors is that you get total transparency for the fees they charge.
On the other hand, commission-based advisors get compensated for the trading activity of investments. For example, when they sell a product of a financial institution to a client, they’ll receive a fee from that firm. In other cases, they’re paid on a per-transaction basis. Some commission-based advisors also charge a proportion of the assets their clients invest in. Understandably, most of what you’re going to pay a commission-based advisor remains a mystery because of the lack of transparency.
Finally, fee-based advisors, who charge both a flat fee and commissions, offer a middle ground between commissions and flat advisory fees. If you’re an affluent investor with more than $5 million in liquid assets, reading our guide titled 7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning provides more information on financial advisory services.
A fiduciary advisor should either be a fee-based or fee-only advisor. They can’t be commission-based, because the conflict of interest between a financial advisor and client is the highest with a totally commission-based fee structure.
For example, if your advisor charges for products based on the investments they recommend, they’ll naturally steer you to investments that will pay them higher commissions. Similarly, if their compensation is tied to the number of transactions conducted, they may engage in the practice called “churning accounts,” which involves excessive trading, with no or less regard to your interests.
While a lot of advisors won’t give biased advice, you can’t take any chances, because there are some who do, and the harm they cause investors can be huge. According to the estimate by the Council of Economic Advisors of former President Barack Obama, seeking financial advice from experts with conflicting incentives costs around $17 billion to investors with individual retirement accounts. It also found that the returns for such investors reduced by 1% per year.
The same report reveals that if you have an individual retirement account (IRA) with a 401(k), conflicted advice can cost you around 12% of your savings over a 30-year period.
Therefore, when you do hire a fiduciary, make sure they’re a fee-only or fee-based advisor who charges either a flat advisory fee or a combination of an advisory fee and commissions. To learn more about the costs associated with fiduciary wealth management, schedule a video consultation with our wealth managers today!
Why Should You Hire a Fiduciary Advisor?
Choosing a fiduciary over a non-fiduciary financial advisor will give you more peace of mind because you’ll know that their decisions will be in your best interests. Not only do they have much fewer conflicts of interest, but even if there’s a potential conflict of interest, they must inform the client about it.
They also tend to be more transparent than non-fiduciary advisors. They’re required to discuss investment opportunities and decisions thoroughly with clients, providing them with all the pertinent information and facts. This ensures that you understand everything about how your assets are managed and what your financial future holds.
As opposed to commission-based or non-fiduciary advisors who are often incentivized to sell certain investment products to their advantage, working with a fiduciary means you will receive recommendations for products that are best for you. This becomes even more important for those with an enormous amount of wealth. If you’re a high net worth investor with wealth exceeding $5 million, read our guide titled 7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning to know what to expect from expert fiduciary wealth management.
Although hiring a non-fiduciary is not necessarily a bad decision, working with a fiduciary means working with someone who truly works in your interest and is only motivated by you achieving your goals. Also, you can sue a non-fiduciary advisor if they don’t deliver what was expected of them, but you’ll have fewer legal options than you would have with a fiduciary advisor who breaches their duty. To learn more about why you should hire a fiduciary advisor, schedule a video consultation with our wealth managers.
Conclusion
Now, you should have a fair understanding of expert fiduciary wealth management. You’ve learned a number of things, including whether or not you can trust a fiduciary, whether a CFP can be a fiduciary or not, the costs associated with fiduciary wealth management, and why you should hire a fiduciary advisor. If you think you’re ready to hire such an advisor, get in touch with Pillar Wealth Management, which specializes in serving investors holding $5 million to $500 million in liquid assets. To hire a fiduciary wealth management expert, book a video meeting with our wealth management team.
To be 100% transparent, we published this page to help filter through the mass influx of prospects, who come to us through our website and referrals, to gain only a handful of the right types of new clients who wish to engage us.
We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.
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