Calamita Wealth Management is here to provide you with all the insight on how to find a fiduciary financial advisor!
What is a Fiduciary Financial Advisor?
Looking for a financial advisor or a financial planner? It’s important to understand the concept of a fiduciary—and determine whether your prospective advisor is a fiduciary.
A fiduciary is an individual who has a legal obligation to act in the best interest of another person. Fiduciaries are held to the highest standard of conduct by the U.S. Securities and Exchange Commission (SEC). Their expectations are to exercise a duty of care and loyalty to clients and have obligations to put their client’s best interests above their own.
A fiduciary will disclose any conflicts of interest and resolve them in the client’s favor and will never use the client’s assets in any way for their own benefit.
Are all financial advisors fiduciaries?
No. “Financial advisor” is actually a somewhat nebulous term that historically describes many possible roles in the financial service sector. Financial planners, investment managers, wealth managers, and even robo-advisors may consider themselves financial advisors.
Fortunately, recent regulation from the U.S. Securities and Exchange Commission (SEC) limited who can use the title of financial advisor. This regulation, enacted in 2022, is called Regulation Best Interest (Reg BI). Now, any advisor registered with the SEC is legally required to abide by fiduciary duty, thereby always putting clients’ interests ahead of their own.
We strongly recommend asking any prospective advisor whether they abide by fiduciary duty.
Benefits of a Fiduciary Financial Advisor
When you work with an advisor who is bound by fiduciary duty, you’re assured that they’re legally obligated to put your interests first. A fiduciary may still have conflicts of interest, but they have a duty to disclose them and make all decisions in your favor.
Advisors who are not fiduciaries may make investment recommendations or decisions in their own best interests—for example, ones that earn them higher commissions or bonuses.
That is where an advisor’s fee structure can also make a big difference because compensation is the main motivation for an advisor to make a recommendation that is not in your best interest.
Fiduciary Fees and Fee-Only Advisors
The way in which your financial planner receives compensation can also impact the integrity of their recommendations. Therefore, choosing a financial advisor also means knowing how your advisor receives compensation.
These are three basic methods that exist for compensating financial advisors:
- Commission-based model
- Commission plus fee model (fee-based)
- Fee-only model
Both commissioned and commission-plus fee advisors receive compensation based on specific financial products they sell. Fee-only financial advisors may receive payment for their services by clients in a number of ways: hourly, as a retainer, as a percentage of assets (AUM), or as a flat fee per session.
Many consumer organizations state that the fee-only method of compensation is the most transparent and objective method. This model minimizes conflicts and ensures that your financial planner acts as a fiduciary.
A fee-only advisor makes money solely from the fees that clients pay to them directly for services and recommendations. Fee-only planners receive direct compensation from their clients for advice, planning, implementation, and asset management. They receive no commissions for any particular investment or specific financial product you as the client might choose.
This removes the incentive for an advisor to suggest or sell certain products. It ensures that the focus is on the advice, products, and services that are truly best for you.
FEE-ONLY VS. FEE-BASED ADVISORS
One exception to this goes by the name of “dual registrant.” Sometimes called fee-based advisors, these advisors may also be registered broker-dealers or insurance agents. This provides them with an avenue through which to earn third-party commissions on top of the advisory fees that clients pay. These commissions may come from selling or recommending financial products, investments, annuities, or insurance products.
A dual registrant who is a fiduciary must fully disclose this role to clients. The tricky part is that a dual registrant can work as a fiduciary when planning and giving advice, but then switch to working under the lesser standard called Best Interest when it comes time to sell financial products. An advisor is not enforceably required to tell you when he or she has “switched hats” and is now working under the lower regulatory standard.
This is why a pure fee-only advisor is the highest standard and safest bet when choosing an advisor. There is no risk that a fee-only advisor will push a commission-based product that might be suitable for you, but also lucrative for them.
(Calamita Wealth Management is a fee-only advisor firm.)
How to Find an Advisor Who Is a Fiduciary
Finding a financial advisor who is a fiduciary may take some research and interviewing. To find a fiduciary financial advisor, first ask trusted friends, family, and colleagues for recommendations. You can also try online sources to find fiduciary financial advisors near you, but make sure to interview them thoroughly. ALWAYS ask any potential advisors if they are fiduciaries.
Some online databases to explore:
NAPFA.org provides a database of financial advisors who have a fee-only structure and who are also fiduciaries.
SEC has an advisor search tool. If the advisory firm is a federally Registered Investment Adviser, and thus a fiduciary, a Form ADV filing will be viewable online. A Form ADV is a plain-English document describing the advisor’s or firm’s services, compensation structure, and other factors related to fiduciary responsibility.
WHAT ARE YOUR NEEDS?
Identifying and understanding your needs is critical to finding a suitable advisor.
Financial advisors offer a wide variety of specialties and focuses. Some advisors may focus on financial planning, while others specialize in investment management, wealth building, or retirement. Some specialize in specific clientele such as high-net-worth individuals, women, self-employed, business owners, or those who work in specific companies or industries.
For example, Calamita Wealth Management specializes in retirement planning for high-net-worth individuals over 50, and those who work for Wells Fargo and Atrium Health.
We recommend finding an advisor who meets your needs, rather than one who’s located nearby. You might find an advisor in your local area who’s a great fit. Meeting in person can be an added bonus. But with Zoom, now established as a common way to hold meetings, it’s best to focus on the ideal fit rather than merely location (unless you’re technologically averse!).
Todd Calamita is the founder and managing principal of Calamita Wealth Management, an independent, fee-only wealth management company located in Charlotte, NC. Calamita Wealth Management serves people locally and across the country, providing wealth management solutions to affluent individuals over age 50 and their families, with a special focus and expertise supporting Wells Fargo employees.
Todd has more than 25 years of experience in the financial services industry. He’s passionate about helping people create a better life by designing and implementing customized financial plans that bring clarity and confidence. Todd is a CERTIFIED FINANCIAL PLANNER™(CFP®) and CERTIFIED DIVORCE FINANCIAL ANALYST® (CDFA®). He holds a Bachelor of Business Administration from Ohio University. He also holds a Master of Business Administration from the Weatherhead School of Management at Case Western Reserve University.
Todd has authored a book, Plan Smart: Conquering 10 Common Money Traps. Todd also wrote numerous articles on wide-ranging personal finance topics, from taxes to retirement accounts. He was featured in a Financial Boot Camp TV series as a volunteer. There he was showing people how to make smart decisions with their money. When he’s not working, you can find Todd spending time with his wife, Teresa, and their sons, Colin and Cameron. He enjoys rock climbing, swimming, and traveling. Todd even has a black belt in Tang Soo Do, a Korean martial art. To learn more about Todd, connect with him on LinkedIn.