Fiduciary Advisor: Ethical Financial Advice – PillarWM
As a high or ultra-high net worth person, you already know the importance of financial planning and wealth management. Managing your immense wealth is best left to the professionals who know the financial world like the back of their hand. The counsel from the right fiduciary advisor can mean the difference between securing and accumulating more wealth or losing your entire fortune. Affluent families with $10+ million in liquid investments have the opportunity to download our guide on finding the best financial advisor for free!
Table of Contents
- Fiduciary Definition
- What is the Role of a Fiduciary Advisor?
- What Is Meant by Fiduciary Duty?
- Are Financial Advisors and Fiduciaries the Same?
- Why Working with a Fiduciary Advisor Is Important
- How Can a Fiduciary Advisor Help You?
- How To Find the Best Fiduciary Advisors
- Fiduciary Duty vs. Suitability Standard
You want to be entirely sure that the person you are trusting all your finances to is going to prioritize and guard them. Financial experts aim to provide you with well-informed opinions and draft plans for your financial success. Financial Advisors at Pillar Wealth Management have decades of experience in advising high earners with $5 million to $500 million in liquid assets. Contact us for reliable and unbiased financial advice.
A fiduciary is an individual who is legally required to adhere to the fiduciary code of conduct, which consists of five fiduciary duties. For example, attorneys and corporate officers are fiduciaries.
Regarding financial advisory services, a fiduciary is obligated to provide advice and recommend investments that are in the best interests of the client. They must place the client’s interests above their own. They must act with prudence in regard to the client’s goals, risk tolerance, and personal circumstances. The fiduciary advisor must adhere to the client’s wishes.
A fiduciary advisor must use standard accounting methods, and they must maintain confidentiality about the financial affairs of the client.
What is the Role of a Fiduciary Advisor?
In your search for finding a financial advisor, you may have come across the term ‘fiduciary advisor.’ If you’re wondering, “What is a fiduciary advisor, and what do they do?” we can help you with that. Our Ultimate Guide contains all you need to know before selecting a financial advisor.
Fiduciary advisors are an individual or organizational entity responsible for taking care of a beneficiary’s money or assets on their behalf. They must put their client’s interest above their firm’s or their own. Their legal obligation to provide you with the highest standard of care makes them use good faith to create an ethical relationship of trust with you.
A fiduciary financial advisor gives you financial advice on various aspects, recommending solutions and products to meet your financial needs. They go through a rigid training to earn their license to practice. With this assurance, you can rest easy that your wealth is in the safest and most experienced hands.
A fiduciary advisor is legally bound to provide and recommend only products and services that are best for the client. They must fully disclose any conflicts of interest.
A fiduciary provides the same services as any other advisor but is obligated to act only in the best interests of their clients, which is called a fiduciary duty.
By hiring a fiduciary advisor, investors can be confident that the advisor will act only in their best interests, putting them above the interests of the advisor.
Unless you are particularly competent in choosing investments, you could benefit from working with an expert advisor who is committed to acting only in your best interests.
Fiduciaries are not allowed to intentionally harm the other party (agent) in the relationship, fail to follow the agent’s directions, or profit at the agent’s expense.
You should hire a fiduciary to ensure that the fiduciary will always act in your best interests, follow your instructions, and act with diligence and professionalism at all times.
A fee of 1% of the value of the assets invested is a normal fee to pay a financial advisor and should exceed your expectations for the return on investments you will earn over time.
The five fiduciary duties are the duty of care, duty of loyalty, duty of confidentiality, duty of accounting, and duty of obedience.
While looking for an advisor, you’ll see that any advisor who is a fiduciary is more than happy to advertise the fact. But you can also ask them if they are a fiduciary and what it means to them.
Regarding retirement plans, the two types are: An ERISA 402(a) Named Fiduciary, who operates and administers the plan, and a 3(38) investment manager, who selects and monitors the plan investments.
What Is Meant by Fiduciary Duty?
A fiduciary duty is mandated by state and common law and applies to anyone providing financial advisory services. A client relies on their fiduciary to exercise expertise and discretion. Their responsibility is to follow a duty of care, a duty of loyalty, and a duty of obedience in all their services.
A breach of fiduciary duty can have legal consequences if proved in court with factual evidence. Negligence or ill will resulting in negative effects for the client will hold them accountable for civil and criminal penalties. Proving the ill intent is crucial because an advisor may have acted in the client’s best interest, but losses can be caused by various other factors too.
Fiduciary duty prohibits advisors from investing in assets that give them a higher commission at the expense of the client’s best interests. Their personal interest cannot precede their client’s.
In particular, wealthy clients have several high-value assets exposed to risk from the wrong advisors. Our guide is specifically designed to help investors with over $10 million in liquid assets in finding the best financial advisor.
Let’s take the example of investment advisors. State securities regulators or the Securities and Exchange Commission (SEC) hold them to a fiduciary standard. This means that they are legally bound to provide accurate and complete information to build a strong investment portfolio for you. They have to ensure that they give you competent investment advice to efficiently trade securities with the lowest costs and highest rewards.
Stringent rules require them to disclose any potential conflicts of interest and to charge a reasonable fee. Not only do our wealth managers have expertise in financial management, but they also possess adequate knowledge of investments. Make an appointment with one of them to get started on your first consultation.
How Statutory Duty Differs from Fiduciary Duty
Statutory duty applies to directors who work in a firm or company that requires them to abide by their constitutions and policies. They must implement strategies and use judgment to ensure the success of the institution as a whole. Therefore, this can affect their decision-making when it comes to their clients as they will strive to protect the company’s reputation.
Are Financial Advisors and Fiduciaries the Same?
With all these complex, interlinking terms, we understand that it may be easy to confuse them with one another. To put it in simple terms, all fiduciaries give some form of financial advice or assistance. However, financial advisors can be fiduciaries or non-fiduciaries, depending on their certifications.
Personal financial management and wealth management fall under the domain of financial advisors who take an in-depth look into your fiscal life. They address issues after assessing your current and future financial goals. They can counsel you through unexpected financial mishaps and use data to help create an investment portfolio for your assets. Additionally, they can help you plan out your retirement, estate distribution, tax management, and insurance policies. Their specializations affect the services they offer. While being a financial advisor does not legally require a license, certified advisors have proper credentials in their area of expertise. Some examples include chartered financial analysts (CFAs) and certified financial planners (CFP).
Fiduciaries offer a more secure approach by advising you on your investments after analyzing your financial goals and risk tolerance. They will recommend the appropriate action after justification and a discussion on the protentional conflicts of interests. They consider whether your investing goals are conservative or aggressive and direct you toward the best options that will enhance your wealth at minimal risk. This can include volatile investments with a high-risk and high-reward or stable investments with low-risk but long-term benefits. To learn more about investment strategies and analyze your portfolio performance, you can read our Performance Guide.
Which Standard of Care Do Financial Advisors Follow?
Fiduciary financial advisors follow a fiduciary standard of care, acting in your favor to solve any conflicts without misusing your assets. While all fiduciaries have a role very similar to financial advisors, not all financial advisors follow this standard of care.
Non-fiduciary financial advisors follow a suitability standard of care which does not hold them legally responsible. Their only aim to give you the best useful advice to meet your financial goals. Brokers and insurance company financial advisors usually fall into this category, among others.
Why Working with a Fiduciary Advisor Is Important
Working with a fiduciary advisor is important because it ensures that your interests will be a priority. The advisor has the duty to provide objective advice, and if they cannot be objective, they have the duty to disclose the conflict involved.
A fiduciary advisor is duty-bound to provide the best advice and recommendations possible, in accordance with the best practices of the profession and their financial advisory training, skills, and expertise.
How Can a Fiduciary Advisor Help You?
It can become tedious to keep up to date with all the changes in the finance sector. Changes in tax laws, legislation, increased interest rates can pose a threat to your investments, which is why it is imperative to stay well-informed. Providing this information to you in a concise and useful manner falls under a fiduciary advisor’s tasks.
Monitoring your funds, evaluating the growth rates, and risk management are crucial aspects of increasing your wealth and safeguarding your assets. Hiring a fiduciary can give you the confidence that your fortune is legally protected under the highest quality of care. To keep you on track for your future goals, your fiduciary advisor will periodically consult with you to make the necessary adjustments to your financial profile.
Wealth loss is a threat that you can be unaware of until it’s too late. Fiduciaries possess knowledge on methods and techniques that can reduce your cost and taxes so that you can minimize unnecessary expenses. Bond sale spreads, internal expenses, margin, and other liabilities can reduce not only your wealth but also affect your investment portfolio. Our guide can tell you how these aspects affect your portfolio performance and the shifts you can make to rectify it.
By now, there should be no doubt in your mind about why high net worth families need fiduciary advisors. A long-term financial plan created by a trained professional helps you stay aligned with your objectives and can guide you in the case of a significant blind-siding life event. A fiduciary can assist you in managing your money, boost your wealth, invest wisely, plan your retirement, and protect your assets. Our book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies for Families Worth $25 Million To $500 Million, offers advice on how you can avoid personal financial crises.
How To Find the Best Fiduciary Advisors
Before you go and hire advisors who will be directly associated with your finances, you want to make sure that they’re the best ones for you. Financial advisory services are gaining popularity these days, with more people recognizing the importance of financial management. Therefore, it will be in your best interest to do some background research.
The SEC’s adviser search tool allows you to look up fiduciary advisors from their vast database. Now that you have a plethora of options for financial advisory services, the next step is to check their legitimacy. For a fiduciary advisor or their firm, a “Form ADV Part 2A” filing is a sure way to check whether they have the appropriate license or certification. Relevant training and educational achievements, along with certificates and accreditations, can indicate the reputation and reliability of the advisor or their firm.
After narrowing down your options, choose one that meets your requirements in terms of advisory fees. Some advisors charge a fixed hourly rate, while others charge an annual fee or straight commission. Alternatively, the number of funds you require to be managed can affect how much fiduciary financial advisors charge you. The typical salary many advisors charge ranges from 0.25% to 1% annually. Our advisors offer fee-only, top quality wealth management services, so contact us for your first consultation.
What To Know About Fiduciary Advisor Services
It is wise for you to acquaint yourself with some backhand knowledge of the financial world so that you don’t have to blindly trust your financial advisor. This way, you can monitor their performance and competency as well. It will also help you understand their strategies and approaches clearly so that you can be positive that your finances are treated appropriately.
Being cautious doesn’t go to waste, even if your fiduciary advisor is already held accountable by their legal fiduciary duty. It is vital to thoroughly understand their capability to manage your high-value assets. For this purpose, here are a few things you should make a point of learning about your advisor before hiring them.
– Whether they abide by a fiduciary standard or a suitability standard.
– Their certifications and accreditations.
– Their area of specialization.
– Their commission rate and fee structure.
– The financial status of their clientele.
– The number and frequency of their meetings or consultations.
– If their consultations will be virtual or face-to-face.
– The array of services they have available.
– Their plan to rebalance and review your financial plan.
– If they have the tools to allow you to monitor your investor accounts remotely.
Having answers to the abovementioned queries will help you apprehend whether the fiduciary advisor is suitable for you and your financial profile.
Fiduciary Duty vs. Suitability Standard
According to the Securities and Exchange Commission, a financial advisor, such as a broker, brokerage, or insurance agent, has a fiduciary duty that must adhere to a suitability standard. This means the advisor must be reasonably diligent in recommending products that are suitable, that is, meet the client’s requirements, but they may not be the best available. The advisor may earn a commission on the sale.
Points to Takeaway
With a rigid ethical standard and liability to legal consequences, a fiduciary advisor is the best option for you. They can oversee and protect your hard-earned money using their qualified expertise. As an affluent individual, safeguarding your assets with the right person should be your top priority.
Pillar Wealth Management is a firm with over sixty years of experience in advising investors with $5 million $500 million in liquid assets. Our fiduciary financial advisors can keep you informed on the latest financial and investment management strategies and policies. We communicate with you about nearly all financial aspects to help you make informed decisions. You can book a meeting with us to get started on your monetary growth and success.