Why You Should Use a Fiduciary

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Volatility and inflation are major concerns for anyone who has their money in the market. One thing that keeps popping up when we talk to clients is, “are you a fiduciary?” If you don’t know what a fiduciary is or why you should use one, we’re going to explain everything in the guide below.

PS. If you would like to have a quick conversation with us, click here to schedule a call with us.

What are You If You’re Not a Fiduciary?

If someone is not a fiduciary, they likely work under what is called “suitability.” What this means is that the investment advisor or broker will recommend investments that they deem suitable to you.

However, what’s “suitable” for you may not actually be in your best interest.

For example, if you work with an insurance agent, they may sell you life insurance, annuities or other products. These agents will often receive a commission for the transaction. Since the agent is making a backend commission, the question arises:

  • Is the agent selling me the best product for me?
  • Is the agent trying to maximize their profits?

Of course, the product may be perfect for you, but under the “suitable” category, it only needs to be good enough. In other words, it may not be the best. A good example of this is some insurance agents can only sell insurance products from one company.

Under this example, there may be better products available from other entities, but they will not be offered to you. When a broker or agent is affiliated with a company and must sell only their products, it becomes a question of “Is this really the best product for me?”

A fiduciary works much differently.

What is a Fiduciary?

A fiduciary is something you’ll see a lot of headlines and buzz about online. Most people agree that you should be working with a fiduciary. The problem is that some advisors will say, “I treat all my clients as if I were a fiduciary.”

And while this isn’t a bad thing, there’s a difference between being a fiduciary and treating someone as if you were a fiduciary.

When someone is a fiduciary, they’re bound by a legal duty to recommend the best financial advice, products, investments and so on to you. A few examples of this are:

  • Certified Financial Planner, or a person who must vow to be a fiduciary to a client
  • Licensing, such as a registered investment advisor, who is bound by law to act as a fiduciary

A fiduciary who provides advice to you must:

  1. Meet a professional standard of care
  2. Never put their own interests above your interests
  3. Avoid misleading statements of conflict of interests
  4. Follow policies and procedures to ensure the advice given is in your best interest
  5. Not charge more than a reasonable amount for services

Imagine a person needs something that will provide lifetime income through an insurance product. As fiduciaries, we must go out, research and find the best product for them. We will often recommend 2 – 5 solutions, all of which have pros and cons to look through.

A broker, on the other hand, can sell you a mutual fund, and they may receive a commission on it. For many clients of ours, they want the peace of mind of knowing that we make the best decision for their goals rather than looking at the highest commission.

Working with a fiduciary like us, we will charge an upfront fee but will not receive a brokerage commission. Essentially, we work for you without the risk of looking at the commission and maximizing our own profits.

Let’s look at an example where a client wants us to provide them with the best ETF options on the market. We would then:

  • Search for the best product using software that offers an abundance of information and metrics for us to work through
  • Since we’re not tied to any affiliation, we can look at performance, volume and value
  • Review expenses and fees for each product

Since we’re not working with any individual company, we do not get a hidden cut of commissions.

We are full disclosure fiduciaries, and we’re not saying someone who works in suitability is bad. We believe that working with someone who is required to put your best interests first makes sense to us.

You can learn who is a fiduciary by asking them:

  • Are you bound by a fiduciary standard?

It’s crucial to use this phrase because a lot of people will use wordplay. The response may be “I treat my clients as a fiduciary would,” but this holds no weight. Treating someone in a fiduciary way is different than being bound by a high level of standards.

You just never know if a big commission can sway this individual’s recommendation.

We always approach every question by going through the person’s retirement plan. If we don’t know any information about your goals, it’s impossible to recommend the best product. Each decision has an effect, and it’s our job as fiduciaries to look through your goals and plans rather than say, “XYZ product is the best life insurance.”

Now that you know what a fiduciary is and why so many people planning for retirement recommend them, you can make a sound decision when securing your retirement.

Do you want to learn more about how to secure your retirement and retirement planning? 

Click here to view our books on securing your retirement.

October 10, 2022 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for October 10, 2022 

CLICK HERE TO WATCH THE UPDATE

This Weeks Podcast – Why You Should Use a Fiduciary

Should you work with a fiduciary, and what does it mean to be a fiduciary? A financial advisor working under the fiduciary premise is bound by certifications and licenses to make transactions in the client’s best interest.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Weeks Blog -Should You Choose a Fiduciary Financial Advisor?

Volatility and inflation are major concerns for anyone who has their money in the market. One thing that keeps popping up when we talk to clients is, “are you a fiduciary?” If you don’t know what a fiduciary is or why you should use one, we’re going to explain everything in this blog.

CLICK HERE TO READ THE BLOG

What is a Fiduciary and Why Is It Important?

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When searching for a financial advisor, you may have come across the term “fiduciary.” But what does it mean? And is it something you should check for before agreeing to work with a particular company or individual?

Choosing a financial advisor can be tricky. You want someone who will work hard for you, sourcing the right products and offering advice that you can rely on.

A fiduciary could be that person. They’re legally bound to put your interests first, regardless of how much they’ll make in return.

But that isn’t the complete picture. Not all financial businesses are fiduciaries, and that doesn’t mean you shouldn’t trust their advice.

In this post, we’re taking a detailed look at fiduciaries, including what they are, how they work, and why they could be the best option for your retirement plan.

You can watch the video on this topic above, or to listen to the podcast episode, hit play below. Or you can read on for more…

What is a fiduciary?

A fiduciary is a person or company that has a legal and ethical relationship of trust with another person. It’s a legal standard that holds financial advisors to account in their interactions with clients and customers.

The most important thing to remember about fiduciaries is that they must always act in their client’s interests. That means finding the best options based on the client’s requirements, regardless of the rate of commission they’ll receive for selling a certain product.

Fiduciaries are held to these standards through licensing and certification, including CFP (Certified Financial Planner) designation. So, when you see a financial advisor with these letters, you know they’re held to fiduciary standards and would lose their accreditation if they breached them.

By now you may be thinking, why aren’t all financial advisors fiduciaries? Shouldn’t they all act in the best interests of their clients?

Well, unfortunately, it’s not that simple. Fiduciary standards don’t work for every type of financial business, for reasons we’ll set out below.

What is suitability?

Suitability is the alternative to fiduciary. Think of it as a diluted version, wherein financial businesses aren’t held to the same strict standards.

Where fiduciaries always act in the best interests of their clients, suitability places more control in the hands of financial businesses. They don’t need to give the best advice and can recommend products based on commission, even if they’re not the best for the client.

That’s not to say financial advisors working within the suitability criteria are unethical. They still take into account a client’s requirements, and the products they recommend must align with their client’s financial goals.

But what kind of businesses and individuals would choose to work within the suitability criteria? And why do they choose not to adhere to fiduciary standards?

Typically, commission-based financial businesses are most likely to work to suitability standards. That’s because they need to make a certain rate of return, and so recommend products that are of more benefit to them than their clients.

This might sound questionable, but suitability is necessary to keep some businesses afloat. It’s also worth remembering that those working within the suitability criteria must consider their customer’s requirements; they can’t recommend poor products and bad deals.

For this reason, many suitability advisors take the stance of: “I’m not bound by the fiduciary law, but I treat my clients like I am.” This is a common practice but something you should take with a pinch of salt. After all, there’s a high likelihood that they’re benefiting from a sale as much as you are.

How do fiduciary and suitability compare?

To help you understand how fiduciary and suitability differ, here’s a helpful analogy showing how each model works in practice.

Let’s say you want to buy a new car for your family. The first dealership you visit recommends large saloons, station wagons, and SUVs, all at different price points. There’s no pressure to buy from the dealer, and you make a choice based on the information they’ve given.

Then, you visit another car lot. Here, the dealer recommends a car that, though suitable for a family, is slightly over your budget. However, they convince you that it’s the right car and you buy it even if it’s not the deal you were looking for.

Can you guess which was the fiduciary dealer and which was the suitability dealer?

That’s right, dealer one was a fiduciary. They offered lots of options that were suitable for families and didn’t recommend any cars that were over your budget to make more commission.

Dealer two was the suitability model. They had one or two suitable cars and used salesmanship to convince you to spend more, making more commission for themselves in the process.

Again, this might sound questionable, but it comes down to how a business is set up and the type of industry they work in.

A final word on fiduciaries and suitability

After reading this guide, you might be thinking that suitability advisors are all bad and fiduciaries are the only way to go – but don’t. Sure, you should be cautious about taking suitability advice at face value, but it doesn’t mean you’ll get a bad deal that doesn’t work for you.

At Peace of Mind Wealth Management, we choose to stay within the fiduciary arena because we believe it’s the best fit for our practice and our clients. Both Radon and Murs are accredited CFPs and are licensed investment advisors, meaning they’re legally bound by fiduciary standards.

If you’re looking for wealth management advice with the assurance of fiduciary accreditation, we can help. Putting your needs at the heart of everything we do, our financial services can help you on your retirement journey.

We hope this guide on fiduciaries helps you think differently about your financial decision-making. Remember, if you need any advice or expertise, our financial specialists are here to help. Book a complimentary 15-minute call with a member of our team to discuss your retirement goals today.