You’ve taken great care, been disciplined in your spending and saving, and worked hard to get where you are today. Now, it’s time to start considering a financial planner – someone who can help you direct and optimize your wealth for the long term. As you begin your search, it’s important to remember that not all financial professionals are the same. A stockbroker and a financial planner or advisor can serve very different purposes, and be differently motivated in ways you might find surprising.

You know you want an advisor who is as invested in your family’s future as you are; an advisor who will sincerely invest the time to get to know you, your goals, dreams, and concerns; an advisor who will align your investments with your values. You want a Fiduciary.

For most, our moral compass might make us believe that something like the fiduciary standard is implicit with all financial advisors. But, does a fiduciary standard apply to all financial professionals? Unfortunately, the answer is no. The Certified Financial Planner (CFP) Board – which sets and enforces the requirements for CFP certification – stipulates that the “fiduciary standard of care” requires a financial adviser act solely in the client’s best interest when offering personalized financial advice. The operative phrase here is “client’s best interest.” This is a legal obligation on behalf of the adviser, not a simple, well-meaning suggestion.  Advisers who work for a Registered Investment Advisory firm are held to a fiduciary standard.  Many other types of financial service providers are not.  This includes stockbrokers, insurance and annuity salespersons, and other types of service providers.

Shouldn’t the client’s best interest be the baseline of any relationship between client and their professional? If you’re asking me, the answer is yes. Unfortunately, the fiduciary standard is not the only standard, despite a worthy push in Washington to make it so. The ugly reality is that many brokerage and insurance firms operate more like sales organizations, and any resultant financial planning is incidental.

The standard that applies to these firms is the “suitability” standard. Suitability, as defined by FINRA, requires that your broker, when recommending that you buy or sell a particular security, must have a reasonable basis for believing that the recommendation is suitable for you. In making this assessment, your broker must consider your income and net worth, investment objectives, risk tolerance, and other security holdings.

Seems reasonable enough, right? Until you consider the purposeful vagueness of those guidelines. An investment may check the requisite boxes of suitability, but is it the best for you? Ultimately, the broker’s duty is to their firm, not you, the client. If they can make higher commission putting you into higher cost, potentially lower performing securities, but still meet the minimum standard of suitability, some may do so.  Remember, the primary obligation is to the firm they work for, not you, as is inherent in the fiduciary standard.

Think of it like this: you’re buying a house. You know you want 2,600 square-feet, and you have a $500,000 budget. There are thousands of homes that can meet your needs. A suitability standard incentivizes your realtor to push listings owned by their agency, and max-out your budget. First offer approved – that’s your new home. A realtor who acted as a fiduciary would likely find out what style home you have in mind – maybe you want a ranch-style home that would be more easily navigable later in life, or maybe you’ve always dreamed of an idyllic colonial. They would make sure the home is in a good part of town, nearer the grandkids, or maybe in that up-and-coming neighborhood that will put you near some trendy restaurants and maximize your home’s resale value. What’s the school district like? Is the neighborhood safe? A fiduciary has a legal obligation to discuss this comprehensive view with you, and find the perfect home for you and your family.

With this exercise, it’s easy to understand the benefits of a Fiduciary in financial planning. Your interests are completely aligned. The “Prudent Man Rule” is an essential aspect of the role of fiduciary, and demands that your adviser act wisely with your money; act how you would with your money, if provided all relevant information and expertise.

Ultimately, no system or set of rules is perfect, and even the fiduciary standard can be breached. So, it’s important to assess individuals as individuals, not simply by credentials attached to their title. Referrals can be helpful – if a friend finds them trustworthy, that’s a great start. Like you’ve done with your money your whole life, great diligence is required. If your adviser put in the time, work, and money to achieve the CERTIFIED FINANCIAL PLANNER™ certification, that may be used as a litmus test of the standard they’re held to, the level of care they want to provide, and the kind of guidance you can expect. If they represent a Registered Investment Advisory firm, this also means they are held to a fiduciary standard.

These are the things we all start thinking about more seriously and in more detail as we approach retirement. Getting these things right is essential to financial independence, but we have to get there first. Are you ready for retirement? My free self-assessment tool can help you determine if you’re making sound choices with your money now, and get you on a transformative path to retirement, even from the most disorganized and modest starting points. It’s never too late!



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