When we seek advice or service for a matter that is very important to us, what’s the number-one thing we need from the person providing the advice or service? Some might say “knowledge” or “expertise,” but in most circumstances, what we most want is trust. We want to believe confidently that the advice or service we’re receiving is really what we need. If we’re paying for it, we want to trust that we aren’t being charged unfairly or exorbitantly. Think about the last time you visited your doctor—or even your car mechanic. You wanted to get the information, treatment, or repair that you really needed, and you trusted that this was what you would receive. That’s what trust is all about.
In the world of financial advising, trust is certainly the most important quality in a good advisor-client relationship. After all, when you are making decisions that will affect your financial future or that of your loved ones, you want to be able to trust that the guidance you receive is being delivered with your best interest at heart—not motivated by the need to earn a commission.
When we consider trust in the advising relationship, an important concept is that of fiduciary obligation. When someone has a fiduciary obligation toward another person, it means that they are ethically and legally bound to act in the other person’s best interest. In other words, if I am acting as a fiduciary toward you, it means that I must do what is in your best interest, regardless of its effect on me.
Suitability only requires that the provider believes the recommendation to be suitable to your needs at the time. It does not require that you be informed of any conflict of interest that exists. It does not require that you be informed as to how your best interest is being served. It does not require that the provider place your interests above those of herself or her employer. Fiduciary duty, on the other hand, requires that your interest comes first, regardless of the effect on the provider. Further, if the provider were to receive a commission or other compensation as a result of their work with you, they would be required to tell you that—and put it in writing—prior to delivering the product or service.
The CFP® Designation and the Fiduciary Standard
Financial advisors who have obtained the Certified Financial Planner® (CFP®) designation have completed a rigorous course of study in order to acquire the knowledge needed to properly advise clients in matters of investment, financial planning, and other important financial matters. But beyond their knowledge, they are required to subscribe to a code of ethics that includes applying the fiduciary standard of care in any financial advising relationship. This means that, above all, they must place the interests of the client above their own interests and those of their firm. They must avoid conflicts of interest, and where such conflicts do exist, they must fully disclose them to the client and obtain the client’s informed consent before proceeding with any course of action.
It is vital, when you are looking for investment or financial planning advice, to understand what type of standard is governing your provider’s behavior. Not only that, but you will want to be assured that your provider will continue to operate according to your best interests as your financial needs and goals evolve and change over time—not just at the time of the initial transaction. To guarantee that your provider is adhering to the highest and most demanding standards on your behalf, you should seek out a professional who is a fiduciary—with all the obligations and requirements that implies. A financial advisor with the CFP® designation should be able to assure you that the fiduciary standard of care is being applied when working with you. They should also be able to answer questions like these:
- How do you get paid?
- How do you decide what investments to recommend?
- How will you become familiar with my situation and needs?
- How often can I expect to meet with you about my account?
- What is your practice for returning calls or responding to emails?
- What if I have questions later?
- Will you give me a list of costs and fees before making an investment?
- What are your qualifications?
- What is your investment philosophy?
- How will you allocate my assets?
- Can you help me minimize the effect of taxes on my investments?
There are many other questions that could be asked, but the answers to these will give you a good idea. Any advisor you work with should be able to answer clearly, without using a lot of financial or investment jargon. You should feel comfortable that all communications are honest, understandable, and display evidence of both professional competence and concern for you and your situation. If the conversation doesn’t meet that test, you should find a different advisor.
The Planning Center is a fee-only, fiduciary financial advisor. Our financial advisors adhere to the fiduciary approach; we offer unbiased advice and a wide range of financial products and services, always offered with the client’s best interest foremost. To learn more about us, or to schedule an initial conversation, please contact us.
