The COVID-19 pandemic created financial challenges for people across the world and led to increased demand for professional financial advice. During the height of the pandemic last April, nearly 8 in 10 CFP® professionals (78%) reported an uptick in inquiries from clients, and 1 in 3 (34%) saw an increase in inquiries from prospective clients.
As more Americans turn to financial planners to better understand their finances and develop holistic financial plans, it is more important than ever that people understand the importance of working with someone you can trust, someone who will put your interests first — in other words, a fiduciary.
But what does it mean to be a fiduciary, and how can you tell if your financial adviser is one?
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.
What Is a Fiduciary?
At a high level, the term “fiduciary” means to always put the client’s interest first. When working with a financial adviser, many people assume that’s always the case. However, that’s not always true.
The Securities and Exchange Commission (SEC) applies a fiduciary duty to Registered Investment Adviser representatives (RIAs). In addition to the fiduciary standard, two other common standards are the suitability standard and the “best interest” standard that the SEC introduced for broker-dealers in the 2019 Regulation Best Interest (Reg BI).
The suitability standard requires advisers to provide advice that is “suitable,” benefiting you but not necessarily in your best interest. For broker-dealers, the suitability standard largely was superseded by Reg BI’s “best interest” standard. But even so, the SEC has said that Reg BI is not a fiduciary standard.
These lower standards do not require advisers to place your interests ahead of their interests at all times when providing financial advice. While it is a step in the right direction, Reg BI does not do enough for investors as it draws upon the key principles of a fiduciary standard and best interest principles but does not hold advisers to a true fiduciary standard.
The CFP® Certification Difference
As part of their certification, CFP® professionals make a commitment to CFP Board to act as a fiduciary when providing financial advice. You should want a financial adviser who makes this commitment directly to you. Therefore, whomever you choose as your financial professional, including a CFP® professional, you should consider getting a written engagement that requires them to have a fiduciary obligation to you. It is a common request, and something you can feel comfortable asking for in your initial correspondence before your introductory meeting.
It is important to note that just because a financial planner is a fiduciary doesn’t mean the adviser is free of conflicts of interest. Under the Code of Ethics and Standards of Conduct, CFP® professionals make a commitment to CFP Board to address conflicts of interest that could affect the professional relationship. This means fully disclosing the conflict, obtaining the client’s informed consent, and managing the conflict in the client’s best interests. For example, when providing advice on life insurance, if your adviser receives a commission from the product being offered, the adviser need to disclose that information to you. If a particular insurance product is not in your best interests, then they need to recommend a different product.
Working with a Dually Registered Professional
A dually registered adviser is affiliated with both an RIA and a broker-dealer. Whether the SEC’s fiduciary standard applies depends on whether the professional is acting in an investment advisory capacity. The lower Reg BI standard applies when they are selling investment products as a registered representative of a broker-dealer. When working with a dually registered professional, you can ask them whether they are acting as an investment adviser representative or a representative of a broker-dealer.
There are benefits to working with a dually registered professional as they can develop and implement holistic financial plans. When working with a dually registered representative, be aware of their dual roles and know when the adviser is subject to the SEC’s fiduciary duty rather than Reg BI standard.
Finally, Do a Background Check
It is also important that you do your due diligence and see if your adviser has been disciplined publicly. The Financial Industry Regulatory Authority (FINRA) BrokerCheck Website, SEC Investment Adviser Public Disclosure Database and the Verify a CFP® Professional tool on CFP Board’s website are available to everyone.
Whether you already have an established relationship with a financial planner or are currently searching for one, it is up to you to you to get a written engagement that requires them to have a fiduciary obligation to you.
-
How Prepaid Verizon Phone Service Works and When It's a Smart ChoiceExplore the differences between Verizon Prepaid and Verizon Postpaid plans—costs, perks, flexibility, and when going prepaid makes sense.
-
Try This One-Minute Test to Uncover Hidden Health RisksFinding out this little-known fact about your body could reveal your risk of heart disease and more. It's a simple, free check for healthy aging.
-
Social Security Wisdom From a Financial Adviser Receiving Benefits HimselfYou don't know what you don't know, and with Social Security, that can be a costly problem for retirees — one that can last a lifetime.
-
Take It From a Tax Expert: The True Measure of Your Retirement Readiness Isn't the Size of Your Nest EggA sizable nest egg is a good start, but your plan should include two to five years of basic expenses in conservative, liquid accounts as a buffer against market volatility, inflation and taxes.
-
New Opportunity Zone Rules Triple Tax Benefits for Rural Investments: Here's Your 2027 StrategyNew IRS guidance just reshaped the opportunity zone landscape for 2027. Here's what high-net-worth investors need to know about the enhanced rural benefits.
-
The OBBB Ushers in a New Era of Energy Investing: What You Need to Know About Tax Breaks and MoreThe new tax law has changed the energy investing landscape with expanded incentives and permanent tax benefits for oil and gas production.
-
Ten Ways Family Offices Can Build Resilience in a Volatile WorldFamily offices are shifting their global investment priorities and goals in the face of uncertainty, volatile markets and the influence of younger generations.
-
Should Your Brokerage Firm Be Your Bookie? A Financial Professional Weighs InSome brokerage firms are promoting 'event contracts,' which are essentially yes-or-no wagers, blurring the lines between investing and gambling.
-
Supermarkets Have Become a Pickpockets' Paradise: How to Avoid Falling VictimSome stores regularly rearrange inventory with the aim of increasing purchases, and they're creating opportunities for thieves to steal from customers.
-
I'm a Wealth Adviser: These Are the Pros and Cons of Alternative Investments in Workplace Retirement AccountsWhile alternatives offer diversification and higher potential returns, including them in your workplace retirement plan would require careful consideration.
