4 Signs Your Advisor Isn’t a Fiduciary

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Your advisor doesn’t have to steal from you to cost you a fortune. Most financial advisors aren’t held to what’s known as a “fiduciary standard,” where they’re required to put their clients’ interests first.

Instead, they only have to meet the much lower “suitability standard,” which means the advisor has to “reasonably believe” that their recommendations are suitable. They’re allowed to recommend one investment over another if it pays a higher commission or if it happens to be the product their companies are pushing. Protect yourself.

So many times we have seen clients trapped in high-cost and sometimes high-risk investments. A lot of times these investments have lock-ups or penalties for early withdraws.

What are some signs your advisor isn’t a fiduciary?

 

1. There isn’t a “CFP” or “RIA” after their name.

Certified Financial Planners and Registered Investment advisors who provide planning services to clients are both held to a fiduciary standard. So are Certified Public Accountants. The CPA personal financial planning credential and the PFS, or Personal Financial Specialist, are similar to the CFP. Both credentials require extensive study of financial planning. Applicants must pass rigorous tests and have experience providing advice before they can get the credentials.

2. They won’t promise in writing to put your interests first.

You should ask advisors for, in writing, a pledge promising to act as a fiduciary, to disclose potential conflicts of interest and to tell you how they are compensated. Such a pledge is a contractual commitment.

3. They are pitching products rather than asking questions.

A good advisor should know a lot about you: how much debt you have, how you feel about risk, how much you have saved and when you plan to retire. A bad advisor is too busy painting a glowing picture of the products they are trying to sell you.

4. You’re not sure how they get paid.

One misconception is that “fee-based” is the same as “fee-only.” It’s not. Fee-only advisors are compensated only by the fees clients pay them. Fee-based advisors may accept commissions or other compensation from the companies whose products they recommend.

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