Finding a trusted financial advisor was already hard. Recently, the court of appeals reversed the pending Department of Labor’s fiduciary rule confusing financial consumers even more. It is critically important to understand if your financial advisor will be acting as a fiduciary for you or, instead, seeking investments that are suitable for you. It is also important, though, to learn if this is a trusted person that understands your needs, offers an approach that feels comfortable, and has the experience you seek for your unique circumstances. To help navigate the sometimes stressful search, we have put together our top five recommended questions when seeking a financial advisor.
1. Are You a Fiduciary?
The fiduciary standard legally obligates advisors to put your interest before their own. Advisors that work under a fiduciary standard must disclose any conflict of interests and share with you whether they benefit from recommending any products or other professionals. They must be transparent as to fees the advisors gets for that advice.
In contrast, the suitability standard is a standard requires advisors to suggest investment products that are appropriate for you. There is no standard to conclude that the investment will help you achieve your goals or is in your legal best interest. Also, there is no requirement to fully disclose any conflicts of interest, potentially allowing an advisor to recommend products that may provide higher commissions for themselves instead of similar products with lower fees.
There are wonderful advisors and poor advisors that work under both the fiduciary and suitability standard. We work under the fiduciary standard and highly value the trust we know it provides.
2. What are Your Credentials?
An advisor’s professional designations and experience matter. It gives you great insight as to the advisor’s knowledge and areas of expertise. There are over 100 different types of credentials and they can be very confusing. If you are looking for a financial advisor, you might be well served to at least be familiar with these three credentials that reflect a broad level of training and commitment: