Trustee Vs. Financial Advisor – Forbes Advisor

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Deciding who to hire to help you manage your money can be a big decision, especially if you’re looking for investment advice and long-term financial planning. But choosing the right advisor can be confusing because of the many terms they use to describe themselves.

A critical consideration is whether that financial advisor is a fiduciary. We’ll explore what a fiduciary is, so you know how they factor into your search for financial advice.

What is a Financial Advisor?

A financial advisor is a professional who guides you through your financial life. They can offer help and expertise on matters as small as your monthly budget or as important as your long-term retirement planning goals.

The problem is that anyone can call themselves a financial advisor, no additional training is required. When looking for an advisor, finding candidates who have the right certifications and expertise is key.

There is a wide range of different types of financial advisers, but the most common type of professional designation is a Certified Financial Planner (CFP). There are also Certified Financial Advisors (ChFC) and Certified Retirement Income Professionals (RICP).

CFPs, for example, complete over 4,000 hours of training and pass a lengthy exam, and must continue their education once certified. CFAs take a series of three exams to earn certification.

Registered Investment Advisers (RIAs) are companies that employ financial advisers. They are required to register with the Securities and Exchange Commission (SEC) or state securities regulators.

Some financial advisors are held to a suitability standard, which means they can recommend products to you that help them earn a commission, even if they are more expensive for you. Others go beyond relevance and are considered fiduciaries.

Differences Between Financial Advisor and Trustee

A fiduciary is a common term for a financial advisor who serves under fiduciary duty. These professionals are committed to making recommendations with your best interests in mind, rather than their own financial benefit. They also disclose any potential conflicts of interest as they advise you on potential investments you may wish to make.

Someone can be a financial advisor without adhering to fiduciary duty. But only those who are fiduciaries are committed to acting first and foremost in the best interests of their clients.

How do I know if a financial advisor is a fiduciary?

A financial adviser will usually announce whether it is a fiduciary. But they may instead note that they are a fee-only financial advisor, so it’s important to make sure before committing to an advisor. Almost all fee-based advisors are trustees.

You can find advisors working in your area or virtually in one of these directories:

You can also check someone’s CFP credentials through the CFP CouncilWhere to use FINRA BrokerCheck to search for SEC Registered Advisors.

Which should I choose: financial advisor or fiduciary?

Although working with a fiduciary is often considered the gold standard for financial advice, only you can decide if it’s right for you. You can be comfortable working with a paid advisor who is clear about how and when they pay commissions.

Questions to Ask Before Hiring a Financial Advisor

When choosing a financial advisor, be sure to ask the following questions:

  • Are you a fiduciary?
  • Are you still acting as a fiduciary? (Some paid advisors may not always act as fiduciaries when selling commission-based products.)
  • How do you earn your money?
  • What is your approach to financial planning?
  • What financial planning services do you offer?
  • What type of clients do you usually work with?
  • Do you have account minimums?
  • Do you have any conflicts of interest in managing my money?
  • What information should I bring for you to consider when developing my financial plan?
  • How often and how often will we meet?
  • Will you collaborate with my other advisors, such as CPAs or lawyers?

Not only do you need to agree with an advisor’s ethics, but you also need to make sure they’re a good match for your individual financial needs.

Is there a cost difference?

The average hourly rate for a financial advisor is $253, and it costs an average of $2,318 for a comprehensive financial plan. If a financial advisor charges a percentage of assets under management (AUM), the average is 1%.

Commission-based financial advisors may advertise low or no upfront fees since they make money on the products they offer to clients. They can take part of your investments or purchases in payment.

Meanwhile, trustees are more likely to work paid or paid hours. You will know what you can expect to pay up front.

A paid financial advisor only makes money from the fees you pay. These fees can be a fixed fee that you pay upfront or a percentage of your money that the advisor manages. They do not receive any commission for selling you certain investments, and paid financial advisors are almost often trustees.

Paid advisors can earn money through a combination of upfront fees and commissions or referrals. If you’re working with a paid professional, make sure they clearly state when they work as a fiduciary and when they don’t.

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