When you work with a financial advisor, you want to make sure that the advice you receive is always in your best interest. You don’t want to jeopardize your financial plan, or your ability to earn more in the long-term because an advisor sold you a financial product that you may or may not have needed.
Many people might be surprised by the fact that not all advisors are obligated to act in the best interest of their clients - and even more people would be surprised to learn that even though their advisor claimed to be a “fiduciary” they still have conflicts of interest when working with clients.
In order to know whether an advisor is actually looking out for your best interest at all times, you need to know the difference between suitability and fiduciary. On the surface, they look awfully similar. Suitability standards require that a financial advisor make financial recommendations that are suitable for their clients. The fiduciary standard requires that a financial advisor always, to the best of their knowledge, act in their client’s best interest when making recommendations or financial planning decisions.
Advisors who act under a standard of suitability have wiggle room. They’re able to sell financial products, like insurance or other investments, and receive a commission from those financial companies as long as the product is “suitable” for the client. There might be an even better product available, but they aren’t obligated to pursue all options. This can be stressful for clients who may or may not fully understand whether their advisor abides by suitability or fiduciary standards.
The first thing you can do if you’re concerned about whether your advisor is a fiduciary is to ask. If they dodge the question, that’s typically not a good sign. However, you should also ask them how they get paid. Whenever an advisor gets paid a percentage of a financial product they sell to you, in addition to the fees you pay them, they have a conflict of interest. Even if the advisor says that they would never recommend a product that offers them extra income if it wasn’t your best available option, there’s no way you can guarantee that. You want to find an advisor who only gets paid by you, and therefore is only motivated by your financial success - not outside incentives.
At Wood Smith Advisors, we act as fiduciaries for our clients. To eliminate potential conflicts of interest and ensure that we’re serving our clients to the best of our ability, we are a fee-only practice. We want to provide our clients with a space to thrive financially, and that means creating an environment for them to receive financial guidance that’s in their best interest. At the end of the day, your success is our success. We want to help you find financial freedom and prosperity, and the only way we could see to do that effectively was through a fiduciary, fee-only business model.
If you have any questions about what it means to be a fiduciary financial planner, or how you can know whether or not your advisor is fee-only, we’re happy to talk to you, and to walk you through your options. Contact us today to learn more.
Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.
"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.