Fiduciary Financial Advisors:
The Complete Guide to What We Do
If you’ve sizeable wealth, we’re sure at some point in your life, you might have come across lots of financial advisors. However, the term “fiduciary financial advisors” may seem a bit alien to you. How are they different? Are they better than normal advisors? Fiduciary advisor firms like Pillar Wealth Management, that serviceinvestors with $5 million to $500 million in investable assets, have started to gain popularity for being highly reliable and effective in what they do. Our guide for individuals with more than $10 million in liquid assets has more information on why our methods are so effective.
However, are fiduciary firms really all that different from normal financial advisors? What extra value do they provide? We will explore all of your concerns regarding fiduciary financial advisors in this blog.
Table of Contents
What Services Do Fiduciary Financial Advisors Provide?
Let’s start off with a simple question about what services both fiduciary and non-fiduciary financial advisors provide. Once we answer that, we’ll explore three other frequently asked questions:
- What does it mean to have a fiduciary responsibility?
- What is the difference between a fiduciary and a financial advisor?
- How do you find the best fiduciary financial advisor?
Financial advisors are professionals that give advice to investors on how to manage and invest their money. There can be various types of non-fiduciary and fiduciary financial advisors. These include:
- Investment advisors
- Certified Financial Planners
- Wealth Managers
- Asset Managers
- Financial Consultants
- Robo Advisors
Each type of financial advisor has their own pros and cons. Choosing the best type of financial advisor will depend on your individual circumstances and needs. For high net worth and ultra-high net worth clients, we have a special guide on how they can differentiate between suitable and unsuitable financial advisors.
Not all types of financial advisors are formally certified to offer advice on money or investment management. They will often have prior training in the field of expertise they offer their services in. For example, investment advisors will often have previous training in stock trading arenas.
Most financial advisors are not equipped to handle and manage all aspects of money and investment management. They usually choose to specialize in one or more aspects of the field. The only type of financial advisors who offer a full range of services are usually wealth managers.
For example, the wealth managers at Pillar Wealth Management aim to provide a holistic set of financial solutions for individuals with $5 million to $500 million in investable assets. You can learn more about our exclusive services by scheduling a free consultation.
What Does It Mean to Have a Fiduciary Responsibility?
Now that you have understood the various roles and types of financial advisors, let’s talk a bit about fiduciary financial advisors and explore the meaning of having a fiduciary responsibility.
Most fiduciary financial advisors are Registered Investment Advisors (RIAs) who are licensed by the Securities Exchange Commission (SEC)to provide wealth management or financial advisory services. RIAs have to meet a stringent set of quality and ethical standards in order to get certified.
As part of the SEC license, fiduciary financial advisors have to agree to follow the Advisors Act of 1940. This law places a legal responsibility on the fiduciary advisor to always only act in the best interests of their clients. They are compelled to eliminate any potential conflicts of interest from their processes to ensure that they can invest their client’s money without emotion.
Having a fiduciary financial advisor can be crucial for high net worth and ultra-high net worth clients. Learn how fiduciary advisors can make a difference in protecting the wealth of ultra-high net worth clients by reading our free hardcover book, “The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies For Families Worth $25 Million To $500 Million”.
The fiduciary financial advisors and managers at Pillar Wealth Management have several processes to make sure they always have your best interests in mind when managing your wealth. You can learn more about usby booking a free chat with us via our website.
So, now that we know, “what does it mean to have a fiduciary responsibility?” we can identify the differences between fiduciary and non-fiduciary advisors. Let’s see why it’s important for you to recognize these differences.
What Is the Difference Between a Fiduciary and a Financial Advisor?
As we discussed earlier, fiduciary advisors are professionals who are certified by the SEC and legally compelled to always act in their best interests. So, what is the difference between a fiduciary and a financial advisor? Do non-fiduciary advisors not care about their clients?
No. We are not saying that non-fiduciary advisors are evil individuals who do not care about their clients’ needs. Almost all of them want to do what’s best for you. However, they’re not always able to follow through with the promise of acting in your best interests because of a few external factors around them. Let’s explore these factors in detail.
A lot of non-fiduciary advisors are individuals who are just starting out their careers at one of the largest financial institutions or banks. These professionals are, of course, very happy to work with you and tend to your interests.
However, their lack of experience means that they’re often doing their supervisor’s bidding. They might be unable to make decisions for themselves, and the large caseload at their bank/institution means that they will be unable to create the personalized investment or financial plan you deserve.They’ll be forced into putting your money in the same pre-set investment plans they use for everyone else.
High net worth and ultra-high net worth clients have special needs and requirements that these plans cannot fulfill. The plans do not account for your life goals and usually carry an unnecessary level of risk.
A fiduciary financial advisor for high net worth clients usually needs to have a wealth of experience before they can become an RIA. When it comes to financial advisory and wealth management services, industry experience is worth its weight in gold. It allows advisors to understand the nuances of the market and correct the many misconceptions new advisors have. For example, experienced managers will realize that it’s almost impossible to consistently time the market in the long run and highly risky. You can find more information about portfolio return maximizing strategies developed by our fiduciary advisors in this guide.
Conflicts of Interest
This is one of the biggest differences between fiduciary and non-fiduciary advisors. Fiduciary advisors certified by the SEC are obliged to eliminate any conflicts of interest and always inform you if any exist.
Though non-fiduciary advisors want to make the best decisions for their clients too, they have to contend with many other interests. This includes their own interests and those of their employers. An example of this is that large banks may often place quotas on financial advisors on the number of clients they need to bring in. This leads to a situation where advisors are chasing new clients (to appease the interests of their employer) and not paying enough attention to the current ones.
Whenever there is a potential for conflict of interest, you can never guarantee that your interests will be first on the priority list.
A fiduciary financial advisor for high net worth clients will almost always only make their money via an annual percentage fee (usually 1%). This fee will be charged on the value of the assets they’re managing. Fiduciary advisors will not make money any other way from you.
However, there is a chance that non-fiduciary advisors may have fees or costs other than the annual fee. There are a few problems with these alternative compensation methods.
For example, we see many investors say that their broker or investor does not charge any fees. This is usually misleading because those advisors are usually making their money on spreads, margins, or commissions.
Why is this an issue? The problem is that commissions and other product-based compensations also create potential conflicts of interest. If your advisor’s employeris earning more commission on a certain security or product, they may be more inclined to have to offer you that security or use your money to invest in it.
It also means that your advisor or manager might be more inclined towards using active money management techniques if they’re earning product-based compensation. This might not be what’s best for you because our experts and other researchers have found that passive money management can often work much better for high net worth and ultra-high net worth individuals. If you’re an individual with more than $10 million, our special guide has all the information you’ll need on the best money management and investment advisory practices.
Overall, investors need to be able to differentiate between fiduciary financial advisors and non-fiduciary advisors as it could save them a lot of money!
How Do You Find the Best Fiduciary Financial Advisor?
After reading all the differences between fiduciary financial advisors and non-fiduciary advisors, it may be obvious that affluent investors will likely find the best results with the former. Advisors with fiduciary responsibilities will always look after your best interests.
But how do you find the best fiduciary financial advisor? Is there a way to categorically judge the value advisors and managers can provide?
Yes! Detailed below are all the important characteristics of a successful fiduciary financial advisor for high net worth clients.
As we mentioned earlier, most fiduciary advisors are likely to be seasoned professionals. However, having experience isn’t just about having a certain number of years under your belt. You should have theright kind of experience.
In this context, the right experience refers to having a track record of excellence and success in working with high net worth and ultra-high net worth clients. A financial advisor needs to know why your needs and situations are different from the average investor.An advisor with this kind of experience will know the nuances of your wealth and the best strategies to protect it. They will know the best way to gauge your goals and create a personalized plan for them.
Pillar Wealth Management wealth managers currently have over sixty years of combined experience in servicing clients with $5 million to $500 million in investable assets. Want to learn why our experience matters? Schedule a free consultation today through our website.
Knows Risk Minimization Strategies
Many advisors and managers make the mistake of thinking that diversification is the epitome of risk mitigation. However, we’ve found that diversifying an investment portfolio is far from being enough to minimize the risks that come with being involved in the market. As a high net worth or ultra-high net worth investor, you have a lot to lose.You need someone who will do better than this.
Experts at Pillar Wealth Management have found that a consistent and optimized asset allocation strategy often plays a much bigger role in risk mitigation than diversification. A good asset allocation strategy will optimize the ratios of bonds, cash, and equities in your investment portfolio. This will allow you to more successfully navigate economic fluctuations. You may not be able to prevent losses, but you can at least decrease the impact of potential situations.
Possesses Knowledge on Techniques to Reduce Cost and Tax
The persistence of unnecessary costs is an issue we see all too often with clients who visit us with complaints of wealth loss.
Avoidable costs like bond sale spreads, margins, internal expenses, active vs. passive management costs, etc., can slowly, but surely, reduce your wealth. All the while this happens, you might be completely unaware of the danger you’re in. Not only do these costs reduce your wealth, but they also keep you from getting the best portfolio performance possible. Our special guide details how costs and taxes can hold back portfolio performance.
The fiduciary financial advisors you speak to should have a solid plan for cutting down your taxes and costs. If they can’t provide a comprehensive solution for this, you’re better off looking elsewhere.
Invests Without Emotions
The best fiduciary advisors have effective processes to completely remove emotions from the investment equation. Emotions and investment can’t go hand in hand, and most advisors know this. However, not everyone has the correct processes and systems in place to remove emotion from their decisions.
For example, Pillar Wealth Management utilizes a 1000 Scenario Stress test on your portfolio to deduce how robust it is against future circumstances. It pits your portfolio against 1000 different scenarios to see how it will perform.
We do not approve of a portfolio until we are sure that it can EXCEED your goals in around 75 to 90 percent of scenarios.
Knowing the answer to important questions like “what does it mean to have a fiduciary responsibility?” and “what is the difference between a fiduciary and a financial advisor?” arms you with the knowledge to choose the right fiduciary advisor for yourself.
If you want to work with fiduciary financial advisors who have more than sixty years of combined experience in working with high net worth and ultra-high net worth investors, give Pillar Wealth Management a try. Book a free meeting with us, and we’ll be sure to address all your concerns.
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