How to Quiz Your Advisor on Fiduciary Responsibilities

Having a financial planner who is a fiduciary is an important component of a healthy investment strategy because it ensures that your advisor must exercise duties that are in the best interest of their client. Just like your lawyer, doctor and accountant, your wealth advisor should be acting in a manner that benefits you, the client.

Licensed Broker vs. Fiduciary Advisor

You may be surprised to learn that financial consultants in the United States are not required to act as a fiduciary. There are two regulations that wealth advisors are required to operate under, best interest and fiduciary rules. Best interest has the same underpinnings as the fiduciary rules. The major difference is a legal obligation under fiduciary versus a regulatory obligation under best interest. The takeaway here is to carefully read your client relationship summary to understand which guidelines your advisor is following.

So, how can you assess how to understand what separates the licensed broker from the fiduciary advisor? We advise looking for firms that have Registered Investment Advisors (RIAs) who are bound by the fiduciary standard.

Key Questions to Ask When Hiring a Financial Advisor

In a blog post put together by my colleagues on the BerganKDV wealth management team, we outline seven things that you need to ask before hiring a financial advisor. Here are my three favorite ones:

  1. What types of clients do you typically work with? You want an advisor who has experience helping people like you! If you are a business owner, your needs will differ from someone who is employed by a public entity, like a university, for example. So be sure to dig into what type of clients the advisor works with and what types of issues they help those clients solve. This will ensure they have experience with your particular set of circumstances.
  2. What would our first year together look like and how frequently will we communicate? This question is especially important for people who may have never worked with a financial advisor before as it helps to set the right expectation about what first-year communication and accomplishments will be. Another reason why this question is important: you want to make sure your advisor actually has a process for the first year and longer. If they can’t give you a clear picture of what the first year will look like, they might not have a process in place and may just be trying to “win” the business and move on. An advisor should be able to articulate a compelling process for how a new client is onboarded and how the process will continue beyond just signing paperwork.
  3. What is your philosophy on investment management? It’s important that you’re aligned with what you’re looking for and what the advisor provides. Many advisors will be quick to pull from their lineup the strategies that seem to be out performing “for now” and you end up buying yesterday’s hot commodity rather than what’s in your best interest, or what will do well in the future. Remember, you want to choose investments that have the highest likelihood of achieving your goals and that are appropriate for you, not be sold investments that are not likely to continue their outperformance and may not even be appropriate for you as an investor. Ultimately you should get a portfolio tailored to your individualized goals and objectives, not pulled off the shelf of investments that have done well recently.

I recommend you use these seven questions referenced in the blog post as a starting point to quiz prospective advisors to help you take the guesswork out of finding the right fit. Fiduciary advisors should have nothing to hide and they will invite you to ask questions. If they get defensive or evasive, consider that a red flag.

More than fees and compensation – how do they make you feel?

In addition to understanding how your advisor will be compensated and how much you will pay in fees, there should be room for asking personal questions that will help you get at the heart of the most important question—is this somebody I like and trust enough to do business with? If the answer is not a resounding “yes!”, then keep looking. There is no shortage of qualified and ethical people out there who would love to help you navigate the financial complexities of your life.

My friend and mentor Brad Klontz, an associate professor of practice in financial psychology at Creighton University, shared in a recent Nerdwallet article to be sure to tell advisors that you’re interviewing others, so they know you’re not making an immediate decision. He says, “Approaching the process like you’re hiring someone can ease apprehension. You may lack confidence around the details of your financial life, but you certainly are quite able to interview three different people for a job.”

I am proud to serve on a team of financial advisors who can help you navigate all areas of your financial life as you prepare for, enter into and live in retirement. Want to learn more about what we can do for you? Start here.

The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

The views expressed are those of BerganKDV Wealth Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investment advisory services and fee-based planning offered through BerganKDV Wealth Management, an SEC Registered Investment Advisor.

CATEGORIES: Wealth Management
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