Is Your Financial Planner Acting in Your Best Interest?
Not all financial professionals are held to the same standards. Some must meet a higher bar than others. What type of adviser are you working with?
![A financial planner meets a client in a restaurant.](https://cdn.mos.cms.futurecdn.net/eVL7SUSh8x9b3HQMneC3qU-415-80.jpg)
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?
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
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.
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 For broker-dealers, the suitability standard largely was superseded by Reg BI’s “best interest” standard.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.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Kevin R. Keller, CAE, is CEO of the Certified Financial Planner Board of Standards Inc. CFP Board sets standards for financial planning and administers the prestigious CFP® certification – one of the most respected certifications in financial services and one of the few accredited financial services designations. He leads CFP Board to benefit the public by granting CFP® certification and upholding it as the standard of excellence for competent and ethical personal financial planning.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
Talkin' 'Bout My Generational Wealth: Baby Boomers
With retirement, each generation has different priorities and challenges. For Baby Boomers, it's a matter of ready or not, here it comes.
By Alvina Lo Published
-
How to Avoid a Big Hassle if Your Financed Car Gets Wrecked
How an insurance check is made out for repairs can cause a world of problems if the lienholder is left out.
By H. Dennis Beaver, Esq. Published
-
Estate Planning Strategies to Consider as Election Nears
Are big changes in tax laws coming soon? Not likely, but you might want to take advantage of higher estate and gift tax exemptions well before the end of 2025.
By David Handler, J.D. Published
-
How to Get Your Money's Worth From Your Financial Adviser
A good financial adviser will focus on how your financial planning and investment strategy align with your lifestyle and aspirations.
By Pam Krueger Published
-
Think of Prenups and Postnups as Financial Planning Tools
These contracts provide a clear framework for asset management and protection and are especially useful if you get married later in life.
By Andrew Hatherley, CDFA®, CRPC® Published
-
Congratulations on Your Raise: Three Things to Do With It
We're not saying you shouldn't spend it on a new car, but there are some considerations to guard against lifestyle creep and to help ensure a comfy retirement.
By Andrew Rosen, CFP®, CEP Published
-
Check Off These Four Financial Tasks to Finish 2024 Strong
The new year is a popular time to set financial goals, but now is the ideal time to check how you're doing. Four tweaks could make a big difference.
By Daniel Razvi, Esquire Published