one often in a position of authority who obligates himself or herself to act on behalf of another and assumes a duty to act in good faith and with care, candor, and loyalty in fulfilling the obligation
It should go without saying that the financial services industry should be built on a foundation of trust. Entrusting someone else with your precious resources is a big decision and one that needs to be taken with the utmost care and diligence.
The unfortunate reality is that this commitment to do what is in the best interest of the client is not universal or required in our industry. While a medical doctor is a medical doctor regardless of which physician you decide to visit, a “financial advisor” is a loose term that can describe brokers and advisors alike.
A broker is someone who earns a commission on a product they sell to you. They are not held to the legal standard of a fiduciary. In fact, they are held to a lesser and more flexible standard of suitability. To most accurately describe the difference between suitability and fiduciary, it might be “suitable” for someone to be invested in an aggressive stock mutual fund, but only the fiduciary has to recommend the one that is more cost effective for the client.
What further compounds the situation is many “financial advisors” are both brokers and advisors. In other words, they wear “multiple hats” and it is hard for investors to know whether they are talking to the salesman or the one acting in good faith and with care, candor, and loyalty.
All of this nonsense and confusion has left many investors guarded in terms of seeking the help they desperately need with their personal finances. What we have now is an entire generation that is largely underfunded for retirement, class action lawsuits involving conflicts of interest, and even fraud and deception that have a created a sour taste about our industry.
Ok, enough griping about the problem; let’s offer a solution, which is quite simple.
Hire the fiduciary only advisor!
It should never require a second thought whether or not your advisor is looking out for you best interest or not. Just like a doctor or lawyer is legally obligated to carry out their duty with the upmost faith of service for their patients or clients, so should a financial advisor.
These professionals do the following:
- Do not accept fees from the financial products they recommend
- Give advice that is rooted in empirical evidence
- Will openly disclose a conflict of interest should one arise that can’t easily be resolved
- Takes the time to educate their client on why they recommending a particular strategy or product
- Will take care of your personal finances like it was their own
This will, at the very least, level the playing field for investors so their decision to work with an advisor is based solely on their recommendation for what is in their best interest and nothing else.
For more information on how Index Fund Advisors, Inc. can assist you with your own personal finances, contact one of our Wealth Advisors at 888-643-3133.
 Definition provided by Merriam-Webster
About the Authors
Tom Allen is an Accredited Investment Fiduciary (AIF®), Certified Cash Balance Consultant (CBC) and a Chartered Financial Analyst (CFA®) Level III Candidate. Tom received his Bachelor of Science in Management Science as well as his Bachelor of Art in Philosophy from the University of California, San Diego.
Mark Hebner - Founder, Index Fund Advisors, Inc.
Founder and President of Index Fund Advisors, Inc., and author of Index Funds: The 12-Step Recovery Program for Active Investors. He is a Wealth Advisor, with an MBA from the University of California at Irvine and a BS in Pharmacy from the University of New Mexico with a specialization in Nuclear Pharmacy.