In light of recent changes in the financial services industry, many consumers are wondering if their financial adviser is a fiduciary. Allow me to point out the differences between an investment adviser performing to the fiduciary standard and other advisers adhering to the suitability standard.
The Fiduciary Duty
Seeking out an investment adviser who will act as your fiduciary can help eliminate many of the problems associated with working with someone who may be oriented toward commissions and making sales bringing about a conflict of interest. Fiduciary care embodies the highest standard of excellence and requires six core duties. Be sure that your adviser performs those duties, as outlined in the following:
1. Serve the client's best interest first, last and always. When your adviser makes a recommendation, it means that a superior option is not available.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free 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.
2. Act in utmost good faith by adopting the client goals as the adviser goals. You and your adviser should clearly communicate with each other, both orally and in writing.
3. Act prudently, with the care, skill and judgment of a professional. You should make sure your adviser is maintaining continual education and the skills required to properly advise you.
4. Avoid and manage conflicts of interest. If a conflict exists, your adviser should disclose the conflict and explain how it will be managed to your benefit.
5. Fully disclose all material facts. Your adviser should provide you with a statement of fees and investment expenses. If a third payment exists to the adviser, firm or anyone associated to the recommendation he or she has given you, a full disclosure should be made.
6. Control investment expenses through analysis of peer group rankings and making certain investment expenses are reasonable. Be sure your adviser is not charging you exorbitant fees.
The Suitability Standard
In contrast, a stockbroker is any person engaged in the business of effecting transactions for the account of others. When the broker recommends to buy or sell a particular security, he or she must have a reasonable basis for believing that the recommendation is suitable for you. In making the assessment, your broker must consider your income and net worth, investment objectives, risk tolerance and other security holdings.
Brokers may go by different titles, such as wealth managers, wealth advisers or financial advisers. Regardless of their titles, stockbrokers are generally not considered to have a fiduciary duty to the client. Instead of being obligated to put their clients' interests ahead of their own, brokers are only expected to deal fairly with their clients and provide suitable options.
How do you know if you are working with an advisory applying the fiduciary standard or an adviser applying the suitability standard? Ask the adviser what standard they are performing to and if they provide a signed pledged attesting that they do in fact perform to the six core duties. It's the best way to ensure you're getting the best advice available.
Con Reha is president of Lincoln, Neb.,-based Liberty Advisers. Over a 45-year career, he has helped many individuals, families and small business owners with successful personal financial planning.
-
The Most Popular Apps for Retirement Planning in 2025A J.D. Power survey ranks retirement planning apps based on customer service and satisfaction. Does your financial app make the cut?
-
Don't Disinherit Your Grandchildren: The Hidden Risks of Retirement Account Beneficiary FormsStandard retirement account beneficiary forms may not be flexible enough to ensure your money passes to family members according to your wishes. Naming a trust as the contingent beneficiary can help avoid these issues. Here's how.
-
Don't Disinherit Your Grandchildren: The Hidden Risks of Retirement Account Beneficiary Forms
Standard retirement account beneficiary forms may not be flexible enough to ensure your money passes to family members according to your wishes. Naming a trust as the contingent beneficiary can help avoid these issues. Here's how.
-
This Is How Life Insurance Can Fund Your Dreams NowBeyond a death benefit, life insurance can provide significant financial value and flexibility through 'living benefits' while you are still alive, helping with expenses like education, business ventures or retirement.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on RetirementWhile some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.
-
One Small Step for Your Money, One Giant Leap for RetirementSaving enough for retirement can sound as daunting as walking on the moon. But what would your future look like if you took one small step toward it this year?
-
This Is What You Really Need to Know About Medicare, From a Financial ExpertHealth care costs are a significant retirement expense, and Medicare offers essential but complex coverage that requires careful planning. Here's how to navigate Medicare's various parts, enrollment periods and income-based costs.
-
I'm a Financial Planner: Could Partial Retirement Be the Right Move for You?Many Americans close to retirement are questioning whether they should take the full leap into retirement or continue to work part-time.
-
From Mortgages to Taxes to Estates: How to Prepare for Falling Interest RatesAs speculation grows that the Federal Reserve will soon start lowering interest rates, now is a good time to review your financial plans for housing, estate, taxes, investing and retirement to make the most of potential changes.
-
This Is How Lottery Winners Build Lasting Legacies, From a Financial ProfessionalWinning a massive lottery jackpot, like the recent $1.4 billion Powerball, requires seeking immediate legal and financial counsel, protecting your identity and winnings and planning your legacy.
