When I first worked as a financial advisor at a broker dealer firm, I was taught the “two hat” training. When I discussed financial planning with clients, I wore my fiduciary hat. This meant the advice I gave had to be in the best interest of the clients. But as soon as the conversation moved to investments, I was required to replace my fiduciary hat with my salesman hat. The conversation continued and clients had no idea that my role had changed. Sure, it was included in the stack of disclosures they received, but I doubt many people read that far. Even if they waded through the legalese, did they understand the ramifications of these two hats that my employer required I wear?
I strongly believe the advice I gave was always in the client’s best interest, but there was no legal requirement for that to be the case. As you can imagine, there’s tremendous room for advisors to put their own interests ahead of their client’s.
Now there are advisors who operate in the “two hat” world that I wouldn’t hesitate to send my family to. But I wouldn’t have the same confidence if I didn’t personally know the advisor. It’s sobering to think that millions of Americans are in that very predicament. Who do you trust with your financial future?
The Definition of a Fiduciary
Unfortunately, from an advisor’s standpoint it’s complicated. It’s understood that a “fiduciary” is one who acts in his or her clients’ best interests. However, defining what “best interest” means varies from one regulatory body to another. There are at least nine definitions of what it legally means to put your client’s interest first, or be a fiduciary, and some argue that many of those definitions are lacking.
One of the core missions of Guiding Wealth is to simplify complex situations for our clients. I want to make it clear that any advice I give my clients is in their best interest, not mine.
That’s why I will be classified as a “fee-only” firm and advisor as of April 1st, 2017. Fee-only advisors do not receive commissions for selling financial products. Rather, they are compensated either hourly, with a retainer or by a percentage based on assets they manage, reducing conflicts of interest.
A Higher Standard for Fee-Only Advisors
Becoming a fee-only financial advisor means choosing to subject my firm to the highest level of fiduciary standard. There are no exceptions for special circumstances, types of account or any other loopholes commonly used. What I charge is completely transparent. Clients either write a check for my fees or see it as a line item on their statements.
While there will always be a potential for conflicts, choosing to become a fee-only advisor is the best assurance I can give to those looking for a financial planning firm they can trust.