Why to Use a Financial Advisor That’s a Fiduciary
Making good decisions about your finances is tough. As you get older you have to balance figuring out how to make the best use of your retirement savings and social security payments with the many expenses that come with aging, like those for health care, assisted living, and home modifications.
Even seniors who have managed money well throughout the rest of their lives can find making the best moves in retirement tricky. When you’re having a hard time navigating your financial questions on your own, you may consider a financial advisor.
A professional that specializes in helping people make smarter financial decisions can suggest options you didn’t know to consider or warn you away from choices that are riskier than you realize. But as with any professional, some financial advisors are more trustworthy and better at their jobs than others.
Obviously, if you’re at the point of wanting to seek out help from a financial professional, you want to be confident that they’re knowledgeable and have their clients’ best interests at heart. One way to increase your odds of good financial advice is to look for a fiduciary.
What’s the Difference Between a Financial Advisor and Fiduciary?
Most financial advisors don’t work exclusively for their clients. Many of them earn a commission from banks or insurance companies for recommending their products. Those commissions are sometimes attractive enough to sway them toward making the recommendation that makes them the most money, rather than the one that’s best for your situation.
Financial planners that agree to be held to the fiduciary standard, on the other hand, are required to make the recommendations that most benefit their client. They may still receive commission fees from the companies offering the products they recommend, but they’re required by law to point you toward the investment that is best for you, no matter what their fees are.
Financial advisors that aren’t fiduciaries aren’t necessarily bad or corrupt, but they don’t have a legal standard incentivizing them to make the best choice for you, so you can never really know if they’re working more for you or someone else.
How to Find a Fiduciary
You might find it challenging to distinguish fiduciaries from other financial advisors – most people do. The easiest thing to do, if you already have a financial advisor or one you’re considering, is to ask. If they say they’re held to the suitability standard, then you know they’re not a fiduciary and you may want to look elsewhere.
You should also go ahead and assume that any free financial advisors won’t be fiduciaries. If this is their profession and they aren’t getting paid by you, then you know the money’s coming from someone else and that will likely sway their advice.
You can use the National Association of Personal Financial Advisors (NAPFA) to find a reliable financial advisor in your area. You will have to pay a fee to work with one of the advisors in their network, but by paying them yourself, you can trust they’re actually working for you.