By Chris Heisten, CRPC®, CFP®, CSRIC®
Okay, let’s face it. There are a lot of confusing titles for people who work with money. Financial planner, financial advisor, money manager, financial coach—these are all names of people that help others with money. But who do you go to? At the end of the day, you need someone with the right qualifications who can create a tailored financial plan that helps you live the life you’ve always wanted. (And if you’re an entrepreneur or oil worker, your needs and goals are not cookie-cutter.) But how do you know who to choose?
Often a title doesn’t help you know if a financial advisor can meet your needs. And to be honest, choosing one can feel like throwing darts in the dark. But instead of taking a gamble on the first financial planner that comes your way, here’s a helpful tip: ask your potential financial advisor whether they are held to a fiduciary standard. This is a surefire way to assure you that the person you’re dealing with is supposed to be aligned with your goals and offer impartial advice.
What Do These Different Titles Mean?
If you’ve ever researched financial advisors, you may have noticed there are many different types of advisors from which to choose. Some of the most common types of financial advisors are brokers, fee-only fiduciaries, and independent financial advisors. It’s important to know the standards each type of advisor is held to as you’re deciding whom to hire.
Here’s the breakdown:
- Brokers manage your portfolio but also sell financial products such as mutual funds or insurance policies, from which they may earn a commission. They are not held to a fiduciary standard, so they may not always act in your best interest.
- Fee-only fiduciaries may charge a flat fee, or a percentage of your portfolio, but they are always held to a fiduciary standard, in which they are required to act in your best interest.
- Independent financial advisors have started their own financial firm. Most independent advisors act as fee-only fiduciaries, but some may act as fee-based advisors and sell additional financial products on a commission basis.
What Exactly Is a Fiduciary?
In general terms, a fiduciary is a person or entity who has the power to act for another in situations that require complete trust. When it comes to the financial industry, financial advisors who work for a Registered Investment Advisor (RIA) firm must always act as a fiduciary for their clients. CERTIFIED FINANCIAL PLANNER™ professionals are also held to this duty when providing financial advice to their clients. By law, a fiduciary advisor must be completely transparent and always act in their client’s best interest. They are also obligated, when possible, to avoid and always to disclose any potential conflicts of interest.
Additionally, the ongoing services and investment monitoring they provide also fall under the fiduciary duty. In other words, their job doesn’t end after the initial meeting or purchase. They must regularly review your accounts to help align your investments with your best interest.
There are financial professionals whose services do not fall under the fiduciary standard. This doesn’t mean that they are out to steal your money and can never be trusted—far from it. These financial professionals who register with FINRA are held to a standard known as Regulation Best Interest (Reg BI). This is a step in the right direction but doesn’t take things as far as the fiduciary standard for financial advisors who work for an RIA firm that registers directly with the Securities and Exchange Commission, or their state securities regulator.
What Does it Mean to Work with a Fiduciary?
There are several benefits to working with an advisor who serves in a fiduciary capacity. For one, they are designed to be open and transparent. Aside from the obvious goal of maximizing value for your money, working with a fiduciary can give you confidence that your advisor is required to work in your best interests rather than their own. They’re supposed to give you their true, professional opinion (even if it’s not the answer you want to hear). This is extremely valuable when you’re facing a big life decision, whether it’s purchasing a second home, transitioning into consulting work, or retiring earlier than anticipated. Reviewing your entire financial picture, an advisor can show you the impact a decision may have on your future and how you can pursue certain goals.
By working with an advisor who holds to the fiduciary standard, you can be confident the person in your corner is designed to put you first. Clients have the power to ask questions and demand the highest value for the service that advisors are providing. As an RIA firm, we understand people’s reservations or even negative connotations toward the underlying motivations of some advisors. We want to assure you that you can trust in the fact that our relationship with you is built on integrity and putting your interests above our own.
A Holistic Approach
Independent, fiduciary advisors do so much more than just pick your stocks. Working with an experienced financial specialist can be a realistic sounding board to help provide you with a litmus test when you have questions or face a big financial decision. They actively coordinate the accumulation, distribution, and transfer of your wealth, as well as the estate, tax, and financial planning areas of your retirement plan. An advisor who looks at the big picture of your financial life can help you optimize income and mitigate taxes in retirement.
For example, this type of advisor helps you create a retirement income plan that strategizes when you take your withdrawals and what accounts you take them from first; not to mention, they also design a Social Security strategy that optimizes your benefits, manages Medicare confiscation, and addresses long-term care so you can feel confident that you’re on the right track as you pursue your long-term goals. The objective advice of an independent fiduciary advisor can make an incredible impact on your financial situation in retirement.
Do I Really Need a Fiduciary?
We believe there’s a short answer to that question: yes! The more in-depth answer boils down to the fact that partnering with a fiduciary advisor to create your financial plan is your best opportunity to work with someone whom you can trust to help you secure your financial freedom.
At Heisten Financial, we don’t predict; we help you plan with confidence. Our primary goal is to help like-minded people pursue their financial goals and turn their dreams into reality. And because we operate as fiduciaries, you can be assured that our team is dedicated to putting your interests first and foremost. Schedule a complimentary assessment today!
Chris Heisten is the President and Founder of Heisten Financial LLC, a fee-based boutique financial planning firm with the focus of giving clients back their time so they can spend it doing what’s most important to them. Acting as a true fiduciary for his clients, Chris aims to solve their financial pain points and move them toward financial freedom. In the financial industry since 2007, Chris partners with business owners and oil workers on their journey through life, striving to instill calmness and a sense of direction as he simplifies the complex. He loves nothing more than seeing clients experience relief when they achieve what they thought was impossible.
Chris graduated from the University of Maine, where he played hockey on a scholarship, and retired from professional hockey in 2007. In the community, he remains engaged serving as a youth hockey coach. Chris holds the CERTIFIED FINANCIAL PLANNER™, Chartered Retirement Planning Counselor℠, and Chartered SRI Counselor™ designations. Outside of the office, he enjoys trying new food and wine, reading, traveling, playing golf and hockey, fat tire biking, and donating to local charities. His passions include being a husband and dad, lake life with the family, watching his son and daughter play sports, and spending time with his wife. To learn more about Chris, connect with him on LinkedIn.