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Fiduciary Financial Advisors: Everything You Need To Know
Are you looking for a financial advisor to help you assess your financial position and investment opportunities? Then, you should consider reading this article to the end!
Who is a financial fiduciary? Well, this is an individual or a financial entity that is mandated to provide technical and financial advice to their clients. You need to understand that you will have to grant fiduciary financial advisors access to your money and assets, at least those that you want to be managed.
I know you already have tons of questions right now. Can fiduciary financial advisors be trusted? Do they operate within the interest of their clients as most people claim? Is this not just a fancy name for a broker? Well, we are dealing with money here! Anyone will question the integrity of fiduciary financial advisors before relinquishing their properties to them.
So what are some of the differences between a fiduciary financial advisor and a broker-dealer financial advisor?
Benefits of Fiduciary Financial Advisors
The relationship between a client and a financial advisor must be built on mutual trust, honesty, and aligned interests. Having a fiduciary as a financial advisor is as honest and aligned as it will ever be. Here are the pros of fiduciary financial advisors.
1. Payment for services
Fiduciaries sell their services and financial service expertise. They help you make sense of your finances and investments while at the same time putting your interests above their interests. This is what you pay for. You do not have to buy any products.
2. Full disclosure
The client or customer Relationship Summary form(CRS) allows the Fiduciary financial advisor to declare, among other things, points where his or her interests do not align with the client’s. This gives room for a more honest relationship that is based on mutual trust. Also, the fiduciary duty requires fiduciary financial advisors to provide complete relevant information regarding an opportunity to the client. Moreover, any financial decision made is often with the permission of their clients.
As an investor, this gives you peace of mind knowing only your interests are being pursued. For instance, a fiduciary financial advisor cannot recommend a lucrative investment to a client he is representing, no matter how lucrative, if he or she stands to benefit financially from the same. Moreover, a fiduciary financial advisor gives you value for your money and helps you get the very best out of every investment.
3. Simplicity
The nature of the client-fiduciary advisor arrangement is guided by aligned interests and guidelines provided under the law. This makes it easier to work with each other from the point of trust. Additionally, there are no motivating factors to pursue separate financial interests since the fiduciary financial advisor’s fee is determined by an agreed percentage of Assets under Management.
4. Protection by a legal framework
The clients’ interest and their assets are protected by a legal framework that requires fiduciary financial advisors to declare their interests as well as up uphold the concepts of Fiduciary. Any action by these advisers that is contrary to the outlined legal boundaries amounts to a breach of the Fiduciary duty.
So what are some of the differences between a fiduciary financial advisor and a broker-dealer financial advisor?
Do you like investing? Learn how a DIY investor can still benefit from professional help.
Differences Between a Fiduciary Financial Advisor and a Broker
For you to understand the existing differences between these two financial entities, you need to know What is a broker? A broker may be an individual or firm acting as go-between traders and security exchanges. A broker can also be called a financial advisor. However, they are not held to the same standards as a fiduciary financial advisor. They buy and sell securities and sell securities in the interest of profit. Now that we are all caught up on a high level let’s look at the other differences between a fiduciary financial advisor and a broker.
The very first and most crucial difference is that a fiduciary financial advisor is bound by law and integrity to act in the best interest of the client they represent. A broker does not have to. This is because sometimes, the interest of the brokerage firm or individual may not align with the client’s interests.
Secondly, transactions made by a fiduciary must be free from conflict of interest. Any conflict of interest must therefore be declared to the client before any transaction is made. Again a broker does not have to play by the same rules. This is because all they need to do is buy and sell securities for a profit. This sometimes means going against their proprietary financial products.
Lastly, fiduciary financial advisors are paid either by a percentage fee of the money they control (Assets Under Management), or by the hour, or paid by the project. Brokers are paid through commissions and by a percentage of the money they control.
Despite the existing frames that guide a client-fiduciary financial advisor, there can be violations of these frameworks. A fiduciary financial advisor can be held financially and civilly responsible for any actions they make that are not in your best interest. Some of these breaches include;
- Misrepresentation: in this type of breach, a fiduciary financial advisor is guilty of making false statements regarding a security transaction.
- Making unauthorized trades: financial transactions undertaken by a fiduciary should be with the full knowledge and permission of the client. Any action contrary to this counts as an authorized trade.
- Acting negligently: This covers breaches that do not fall under custom-defined types of breaches.
Still, want to learn more? Continue your learning about a fiduciary financial advisor.
At BlackBird Finance, we operate as fiduciary financial advisors to better serve our clients. Clients can rest at ease knowing we don’t get commissions selling investments and will act in their best interest. If you would like to find out more about how we can help accelerate your financial prosperity, sign up for a free consultation.