What is a Fiduciary?
A fiduciary is someone who has a legal obligation to act in the best financial interest of another party (like a client) at all times. While the term "fiduciary" specifically refers to financial matters, plenty of professionals you work with have a similar duty – albeit with a different name – to act in your best interest at all times. Your CPA has a fiduciary duty to you; your doctor has a duty of care (which can include a fiduciary duty); your attorney has a lawyer's duty and a fiduciary duty.
Many people I've spoken to assume that their financial advisor has a fiduciary duty. And they're stunned when they find out that more often than not, the person to whom they've entrusted their financial future has not obligated themselves to act in their clients' best interests.
Why Aren't All Financial Advisors Fiduciaries?
I think it's safe to say that most of us – whether they work in the finance industry or they're investors – can agree that financial advisors should look out for their clients above all else. So why are so few of them legally obligated to do so? The short answer is that the financial industry has primarily been a product sales industry since the beginning. However, things are starting to change.
A few years ago the Department of Justice proposed a rule that would require all financial advisors to act in the best interest of their clients' retirement accounts. The rule was a great step forward for our industry as it seeks to move from financial product sales to delivering financial advice.
However, since the rule was proposed, lobbyists – particularly those who represent the interests of Wall Street – have put up a number of political roadblocks to prevent the rule from taking effect. Most recently, the DOJ Fiduciary rule was dealt another blow when a court in the 5th circuit ruled that the DOJ overstepped their authority with the requirement.
Despite this setback, there is good news: investors are waking up to conflicts in our industry and are beginning to vote with their feet.
Investors Want to Work With a Fiduciary
Most of the industry's "advisors" are not obligated to act in your best interest at all times. Some will put on their fiduciary hat when it comes to your IRA, but they will take it off before they try to sell you an annuity.
Imagine you're not feeling well and you schedule an appointment with your doctor. They act in your best interest by giving you a thorough exam and diagnosing what's wrong with you. But then, instead of writing you a prescription for a medication that is proven to quickly and effectively fix your problem, they write a prescription for a different medication that isn't as effective, because the company that makes the inferior medication promised your doctor a bonus for every prescription they write. You'd be outraged, and rightfully so: they're putting their own interests ahead of yours. All too often, that's exactly what happens with financial advisors.
Fortunately, the financial industry is leaning more and more towards a strictly fiduciary professional relationship. "Financial Advisors" used to be stockbrokers, then mutual fund and life insurance salesman, but now we are on the cusp of a future where – hopefully – all advisors will be obligated to deliver unbiased advice, just like any other professional.
How to Find a Fiduciary Financial Planner
After the DOJ Fiduciary rule was struck down by the 5th Circuit, many publications published articles on how to find a financial advisor who WILL commit to acting in your best interest at all times.
If you are looking for a fiduciary advisor, I recommend that you act quickly. You might also need to be patient, because fiduciary advisors are in higher demand than ever before; in fact, many fiduciary advisors – like our firm – have a waitlist for the many investors who want their financial futures to be managed by people they know they can trust.
Fiduciary Financial Planners in Saint Paul, Minnesota
You can search for advisors on sites such as NAPFA, XY Planning Network, or the Garrett Planning Network, all of which make it a membership requirement for advisors to be 100% fiduciaries. If you live here in Saint Paul, Minnesota, you're in luck: there is a strong community of fiduciary financial planners in the Twin Cities. If you aren't sure whether your advisor has committed to act in your best interest or not, feel free to schedule an introductory phone call and I'll be able to tell you right away!