The term “fiduciary” holds significant weight and trust in the realm of financial services. For individuals seeking financial guidance about managing finances and financial planning for the future, understanding what it means to work with a fiduciary financial advisor can make a profound difference in their financial well-being and peace of mind. Not all advisors are fiduciaries, nor should they be, and this article will explore the differences and benefits of different types of financial advisors.
At HighPoint Advisors, LLC, our advisors act in a fiduciary capacity whenever possible but are also able to act as a non-fiduciary depending on the engagement and specific client situation. We have the flexibility and independence to adapt to a wide range of planning needs for our clients both in Syracuse, NY, as well as the many other areas of the country that we serve.
What Is a Fiduciary?
A fiduciary is a professional who is legally and ethically bound to act solely in the best interests of their clients. Specifically in the financial advisory context, this means they must prioritize the financial well-being of clients above all else, including their own potential gains. Fiduciary advisors are required to provide advice and recommend products and services that are most beneficial to you, rather than those that may generate higher commissions or fees for themselves or provide some other form of incentive or recognition. This legal and ethical obligation sets fiduciaries apart from other types of financial advisors, such as brokers or salespersons.
Benefits of Working with a Fiduciary Advisor
- Client-centered Advice: Fiduciary advisors are required to give advice and recommend investments and strategies that align with the client’s stated goals and financial priorities. This ensures that every recommendation made is meant to optimize the client’s financial outcomes.
- Comprehensive Planning: Fiduciary advisors commonly engage in holistic financial planning services, which consider all aspects of a client’s financial life. This could include investments, retirement planning, family dynamics, estate planning, charitable giving, insurance planning, or tax strategies. Fiduciaries typically provide comprehensive financial planning, while non-fiduciaries may focus more on product sales.
- Transparency: When outlining the scope of the relationship, fiduciaries must provide clear information about all fees and commissions upfront, providing clarity on how they are compensated for their services. They must also discuss investment and planning alternatives as they work to help clients make informed financial decisions.
- Avoidance of Conflicts of Interest: Fiduciary advisors must avoid or disclose conflicts of interest, whereas non-fiduciaries may recommend products or services that benefit themselves. Unlike non-fiduciary advisors who may earn commissions or incentives from recommending certain products, fiduciaries are bound to recommend solutions that benefit the client without regard to their own personal gain.
The Role of a Fiduciary Advisor
The role of a fiduciary financial advisor extends beyond just investment advice or planning services to encompass a broader spectrum of responsibilities. Some organizations, such as the Certified Financial Planner Board, require their registered advisors to act as fiduciaries and follow specific duties. The main duties of a fiduciary are the duty of care, the duty of loyalty, and the duty to follow client instructions. Adhering to these standards helps to build trust and confidence between the advisor and the client and should lead to a better and more satisfying long-term relationship.
However, it’s important to understand that not all financial advisors are fiduciaries. Transaction-based brokers and other financial salespeople operate under a different standard known as the “suitability standard.” What makes this standard different is that it only requires them to recommend products that are suitable for your needs at the time, but not necessarily the best or most cost-effective options. A fiduciary works to look after your financial best interest, while a non-fiduciary provides a suitable transaction or product at the time of recommendation. The suitability standard does not necessarily mandate the elimination of conflicts of interest or specify that a client’s best interest be prioritized.
There is certainly a time and a place for both types of engagement, but knowing the difference is key. While a fiduciary standard is more comprehensive, there are many more simplistic situations where a suitability standard is an appropriate fit. To illustrate the point, we’ll give an example of both roles:
One example of when an advisor would be acting as a non-fiduciary could be selling a life insurance policy to a client. In that scenario, the advisor would be paid a commission to sell a policy that is suitable for the client’s situation and would not have an ongoing monitoring or post-sale service requirement. The client’s needs would be met, and the single transactional engagement would be complete.
One example of when an advisor would be acting as a fiduciary could be comprehensive financial planning. Getting to know a client in more depth over time and working together to help a client attain their long-term financial goals requires tailored advice and customized product selection. Recommendations made over time are specific to the individual client based on what is in that client’s best interest and are adjusted over time as conditions change.
Become a Client of HighPoint Advisors, LLC
HighPoint Advisors, LLC, works with a diverse range of clients who have unique needs across the spectrum of financial planning. We act in a fiduciary capacity whenever we can, but we always strive to provide the highest level of service to any client no matter what the specific engagement is. Our firm’s founding principle is to do the right thing for our clients, and that means we’re always looking out for our client’s best financial interests in the work that we do.
Reach out to us today and see how we can help you work toward your goals!