The Importance of Fiduciary Standards in Financial Advice

Recently, I was pleasantly surprised to receive an insightful article forwarded by a client. It appeared in the AARP bulletin and discussed the importance of choosing a financial adviser based on a fiduciary standard. The article highlighted something I had never heard before but now find quite fitting—”Me-first” investment advice. This term describes the type of advice that prioritizes an adviser’s interests over those of the client.

The article revealed a shocking statistic: The government estimates that individual retirement accounts lose $17 billion a year to “me-first” investment advice, where salespeople earn high commissions and fees by selling products with hidden costs. This money could have been used to better the lives of investors.

Key Steps to Ensure Your Adviser Puts Your Interests First

Here are the article’s key recommendations for ensuring your financial adviser acts in your best interests:

• Ask your adviser to state in writing that they will act as a fiduciary for all accounts, both retirement and non-retirement.

• Request a comparison of the costs and benefits between leaving your retirement money in your 401(k) versus transferring it to an IRA.

• Consider working with an adviser who charges flat fees, such as a percentage of assets managed or a fixed annual amount, rather than those who take commissions.

• Don’t be misled by titles such as “financial adviser” or “wealth manager”—ensure they are truly serving your needs.

These are great starting points for vetting an adviser, but I believe there’s more to consider.

Additional Considerations When Choosing the Right Adviser

While the above list is helpful, there are other critical factors to take into account when choosing a financial adviser:

• Credentials Matter: Ask for the credentials of the entire advisory team. For planning professionals, the CFP® designation is key. For investment professionals, look for a CFA. Be cautious of other designations, as many are just alphabet soup—there are 174 different designations listed by FINRA, but not all are meaningful.

• Experience Counts: In addition to credentials, ensure the team has the right experience—especially those responsible for selecting your investments.

• A Proven Process: Ensure that the advisory team has a clear, measurable process in place. A process can be tested and improved over time.

• Be Aware of Conflicts of Interest: Ask about any potential conflicts of interest that may influence your adviser’s recommendations.

Final Thoughts

Notice that I haven’t mentioned rates of return or specific investments—because the best advisers don’t control the stock market, and neither do you. What you can control is choosing an adviser who will put your interests first, guiding you toward a future of financial stability and success.

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