2017-10-18 | Marcus Miller

Is Your Financial Advisor a Fiduciary? It is Worth Finding Out.

Blog

With all the financial media attention given to the term fiduciary in recent months, many people have been asking me questions on the topic.  “What exactly is a fiduciary?  How do I know whether my advisor is one?  And if he or she is not, am I getting bad advice?”

I know it’s confusing.  Most folks don’t have a clear understanding of how their advisor is compensated or how much.  And sadly, in some cases, it’s by design.

This topic is one I am quite passionate about and believe it’s critical for every investor to understand. 

So my objective with this post is to provide clarity around the term fiduciary, and to help you answer the question – “Am I getting advice that’s in my best interest?”.

Fiduciary defined

Essentially, a fiduciary is a person (or organization) with the duty to act in your best interest.  He or she must make full disclosure of all material facts and any conflicts of interest.   Fiduciaries can be found in a variety of legal and business settings, but often it involves finances.  For example, CPAs, lawyers, financial planners, trustees, and executors of estates can all be considered fiduciaries.

Sadly, not all financial advisors operate under the fiduciary standard.  Many firms have a business model focused on quotas, sales bonuses, and proprietary or in-house products. Not all of these “advisors” are required to disclose where and how they are compensated and if any conflicts of interest exist.  There may be no way of knowing if their recommendations are free of conflicts.  Most of these brokers and reps are no doubt sincere people trying to do honest work for their clients, but there is an inherent conflict of interest when you get paid based on what you recommend.

Here is a 2 ½ minute animation from Hightower Advisors that does an excellent job of simplifying the difference between a fiduciary and a broker.  It’s well worth your time!  Brokers vs. Fiduciaries

What should you do?

It’s a sad state of affairs when the first question you have to ask is:  “Do you have my best interests in mind?”  But that’s the environment we’re in.  A recent study estimated that non-fiduciary advice costs American investors one percentage of their return annually.[1]

At the end of this post is a Fiduciary Oath written by the National Association of Personal Financial Advisors (NAPFA).  If you are currently working with an advisor, give him or her a copy and ask if they are willing to sign it.  Same goes for any advisor you consider working with in the future.

Deerfield Financial Advisors, Inc. is a SEC Registered Investment Adviser, held to the Fiduciary Standard. We have chosen to remain Fee-Only and Independent, allowing us to strive to provide the best advice to our clients.  If you or someone you care about would like more information about us, feel free to contact us here: Deerfield Financial Advisors


Fiduciary Oath

National Association of Personal Financial Advisors

The advisor shall exercise his/her best efforts to act in good faith and in the best interests of the client. The advisor shall provide written disclosure to the client prior to the engagement of the advisor, and thereafter throughout the term of the engagement, of any conflicts of interest, which will or reasonably may compromise the impartiality or independence of the advisor. The advisor, or any party in which the advisor has a financial interest, does not receive any compensation or other remuneration that is contingent on any client's purchase or sale of a financial product. The advisor does not receive a fee or other compensation from another party based on the referral of a client or the client's business.

Following the NAPFA Fiduciary Oath means I shall:

  • Always act in good faith and with candor.
  • Be proactive in disclosing any conflicts of interest that may impact a client.
  • Not accept any referral fees or compensation contingent upon the purchase or sale of a financial product.




[1] Joseph C. Peiffer and Christine Lazaro, “Major Investor Losses Due to Conflicted Advice: Brokerage Industry Advertising Creates the Illusion of a Fiduciary Duty”. March 25, 2015.