Is Your Adviser Really a Fiduciary?

You should ask point blank and check if they are a CEFEX-certified firm.

In the world of financial planning, the term "fiduciary" has become co-opted and rather commoditized. From my perspective, being a fiduciary at its most basic definition means placing your client's interests before your own. But further unpacked, this simple definition can become a viper's den of complications and caveats in certain hands.

Let's discuss the distinctions of a true fiduciary and those who may simply use the term.

The largest distinction lies in the difference between investment advisers, acting as a fiduciary by strict definition, and a broker-dealer, whose actions may not be in a fiduciary capacity at all. My firm's investment adviser, Certified Advisory Corp, is the former and provides investment advice to its clients. The only fee we derive for the advice rendered is the agreed-upon fee.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

In contrast, a broker-dealer cannot legally provide substantive advice. The advice they do provide typically comes attached to a product. This product may be the brokerage platform itself and, more insidiously, a proprietary investment product.

Imagine a scenario in which your broker-dealer charges you 0.50% for investment advice on your $10 million of investable plan assets. They also charge you a fee for trades executed through their brokerage platform—clear incentive to ensure your broker-dealer affiliated adviser uses only that platform and does not search for equal, more cost-effective alternatives. At the same time, your broker-dealer-affiliated adviser may also push a branded proprietary product. If selected, the revenue of this product flows back to the broker-dealer parent, and your adviser likely receives a commission or soft dollar incentive for this additionally derived revenue.

This proprietary investment product, now added to your portfolio or investment lineup, may be a fine product, and truly suitable. However, did your adviser act in your best interest and search for alternatives that perhaps had a better share class or other lower fees? In a worst-case scenario, are you certain they properly evaluated investment alternatives that may not only have been cheaper, but may have also outperformed their proprietary offering?

The commission-based incentive to sell you this product ensures that they likely have not taken these actions. If you are a sponsor of an employee retirement plan, this lack of fiduciary due diligence on your end now opens you up to a litany of breach of fiduciary duty claims that settle on your shoulders—not on your broker-dealer, who never truly accepted the role of a fiduciary that ERISA mandates.

The Department of Labor's Fiduciary Rule

These issues should be enough to bring one question to the fore: "How much money is my broker-dealer or broker-dealer's registered representative deriving from their relationship with me?" The answer is likely much more than the fee you believe you're paying.

The next question you should ask your adviser point blank: "Are you a fiduciary? And, if so, "What kind of fiduciary are you?"

Helping to clarify these questions is the Department of Labor's new fiduciary rule, which is scheduled to be instituted in full in the coming months. And while complicated, totaling more than 1,000 pages, it does lay out one very clear thesis: Broker-dealers cannot provide advice nor exist as fiduciaries in any capacity if they are also providing investment product. Given this, it does beg the question of whether broker-dealers can ever act as fiduciaries or, in fact, have ever truly acted in this capacity historically.

Besides asking whether a professional is a fiduciary, you can also check whether the adviser has received the Centre for Fiduciary Excellence's CEFEX designation—as Certified Advisory Corp has.

Only 75 investment advisers in the U.S. are currently CEFEX certified. The process to certification requires a 120-page questionnaire and an on-site examination. The Centre for Fiduciary Excellence is independent, and its CEFEX designation is described as serving investors "who require assurance that their investments are being managed according to commonly accepted best practices." At the same time, it assists these investors in identifying and determining "the trustworthiness of investment fiduciaries."

You can learn more about the specifics of the CEFEX process here, but I believe this designation underscores a commitment to both the spirit and the letter of being a fiduciary.

When working with a CEFEX-certified firm, you can rest assured that you are working with a true fiduciary, who is providing you the latest insight to achieve distinctive results.

Joseph F. Bert, CFP®, AIF®, the founder of Certified Financial Group, Inc., has been in the financial planning profession since 1976. He is also president of Certified Advisory Corp and a member of the Financial Planning Association, where he served as its President and Chairman of the Central Florida chapter.

Since 1976, Certified Financial Group, Inc., has grown to become one of central Florida's largest independent financial services firms providing fee-only financial planning and investment management to individuals, families and employer-related retirement plans through its Investment Adviser, Certified Advisory Corp.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Joe Bert, CFP®, AIF®
Chairman and CEO, Certified Financial Group, Inc.

Joe Bert, CFP® is the Chairman and CEO of Certified Financial Group, Inc. and has been in the financial planning profession since 1976. Joe can be heard every Saturday in Orlando, FL on News 96.5 FM at 9:00 a.m. EST hosting On the Money and seen twice weekly on the Fox TV affiliate, WOFL Fox 35. An experienced and knowledgeable financial planning practitioner, he has been affectionately referred to as the "Oracle of Orlando®" by his audience.