Do you know who to trust when it comes to financial advice? There’s a lot of confusion out there, so let’s jump right in and clear things up.
Recent research by Personal Capital found that almost 50% of Americans incorrectly believe that all Financial Advisors are required by law to act in their interest. This is a dangerous misconception, as it can lure employees at all levels of financial confidence into getting biased (and often costly) advice.
When it comes to offering financial wellbeing with advisors you can trust, look for a program with Certified Financial Planner™️ professionals that are true fiduciaries. “Fiduciary” is a fancy word that represents the ethical standard to which an advisor is held for giving guidance and managing money.
What is a Fiduciary financial advisor?
The official Fiduciary Standard was created in 1940 with the Investment Advisors Act. It states that:
- An advisor must place his or her interest below that of the client.
- An advisor is prohibited from buying securities for his or her account prior to buying them for a client.
- An advisor must do his or her best to make sure investment advice is made using accurate and complete information. The analysis must be as thorough as possible.
- An advisor must avoid conflicts of interest. As a fiduciary, an advisor must disclose any conflicts of interest or potential conflicts of interest.
Suitability vs Fiduciary: What’s the difference?
You might hear Advisors say they act in your best interest but they aren’t quite fiduciaries. That’s where the Suitability Standard comes in.
There’s a lot to unpack here, but the main difference you’ll come across between a true fiduciary and an advisor that’s following suitability standards is how they guide their client’s decision making.
A fiduciary advisor will go through an in-depth process to determine their client’s true best interest before giving guidance. After the recommendation is given, there will be additional discussion to make sure there’s no misunderstanding on the guidance and reason behind it.
On the flip side, an advisor who is following the suitability standard is not required to have the same level of discussion. Once guidance is given to (the best of the advisors knowledge of what’s correct), the conversation can end. The suitability standard only calls for “fair dealing and best execution” which means the advisor is required to:
- Execute guidance promptly and at the most favorable terms available, determined through "reasonable diligence"
- Disclose material information
- Charge prices reasonably related to the prevailing market
In addition, the need to disclose potential conflicts of interest is not as strict a requirement as it is with a fiduciary.
More on Suitability here on Investopedia, if you want to get deeper on this topic.
In providing a workplace financial wellbeing program, there’s real money on the line. Partner with an unbiased program that employs Certified Financial Planner™️s who are true fiduciaries. It will be the best resource for employees as they build confidence around their money, and it will bring you (as their employer) peace of mind