Making the decision to use professionals to help with financial planning is great, but how do you choose the right professionals? Financial planning is full of confusing jargon.
Fiduciary and suitability are terms you’ve probably come across when looking for this type of help, but do you actually know the difference between the two terms? The professionals at Cardinal Advisors act at a fiduciary level, while including suitability, when assisting you with financial planning and we’ll tell you why.
What does Suitability mean?
When an advisor says they are required to meet a “suitability standard,” that means the advisor has to answer “yes” to the question: “Is this product going to meet the needs of the customer?” The recommendation an advisor makes must be suitable for the client. And while it’s difficult to recommend something unsuitable, there are a few things to consider with financial planning, including excessive transaction costs and frequently switching account assets so that an agent makes more money.
It’s also of great importance to know that advisors following the suitability standard can have an undisclosed conflict of interest with the products they provide. Under the suitability standard, advisors are allowed to sell you products, largely benefitting them, as long as the product qualifies as “suitable.” When working with an advisor under a suitably standard, it’s ultimately up to you to figure out if the product is right for your financial needs. The advisors’ loyalty is not to you, but to themselves and their employer.
This is why Cardinal Advisors follows a fiduciary standard- we are required to put your needs ahead of ours!
So, What Exactly Does “Fiduciary” mean?
To meet a fiduciary standard, an advisor must place the interests of the clients above their own. This means not only does a fiduciary meet the suitability standard, but they surpass it.
Conflicts of interest are to be avoided when making recommendations. A fiduciary is required to be transparent about these conflicts, and if they can’t be avoided, they must be disclosed. This is most easily demonstrated in regards to commissions. For example, when an advisor is selling you a policy or recommending an investment, if they earn a commission it must be disclosed. When acting as a fiduciary, an advisor cannot sell you a product based on the amount of commission they’ll receive. Your best interests must be the overriding priority.
To put it in perspective, say you were shopping for a financial product that would require paying fees. An advisor following a suitably standard could make a recommendation on which the fees are much higher because they’ll get a higher commission while an advisor following a fiduciary standard would not be able to recommend this product if there was another they could recommend with similar benefits and less fees.
A fiduciary advisor cannot put personal needs above the needs of the client. Fiduciaries are required to choose a product that meets the best interest of the customer.
How Do I Find a Fiduciary?
Sometimes it can be difficult to find an advisor who is required to follow a fiduciary standard. Many people don’t advertise this point specifically, though it’s definitely something to consider when choosing a financial advisor.
First and foremost, you can look for a CFP® associated with someone’s name. CFP® certification requires that the professional, or in this case financial advisor, acts a fiduciary. You can search for a CFP® in your area here.
Second, if you are looking for help with your IRA or 401k, as of June 9th of this year, all advisors must act as fiduciaries with regards to your “qualified money”.
The last, and easiest, way to figure out if your financial planner is a fiduciary is to simply ASK.
Cardinal Advisors acts as a fiduciary for our clients. We work in all 50 states and D.C., but if you would like a local financial advisor, we can help you find a fiduciary advisor in your specific area. Cardinal Advisors home office is located in Cary, NC. Our financial advisors like to meet an individual seeking financial assistance face to face, but we’re also free to help people all over, with the promise that we can find an advisor who follows the fiduciary standard.
Hans Scheil is the author of “The Complete Cardinal Guide to Planning for and Living in Retirement” and the accompanying workbook. He can be reached at Hans@CardinalGuide.com.