Financial Management

How to find a fiduciary financial adviser

Historically and by law, most financial advisers are required only to make recommendations that are "suitable" for their clients. A small but growing number of advisers have a requirement to act as a fiduciary, which means that the financial adviser must place your needs first above the needs of their companies or themselves. Some laws are being considered to make it a requirement that all financial advisers working on retirement accounts must act as a fiduciary. However, we aren't there yet so you need to know how to find an adviser who is truly working for you.

Ask your adviser, "Are you a fiduciary?"

It is illegal for someone to tell you they are a fiduciary when they are not acting in that capacity. Advisers who work for "broker dealers" or pure insurance agents are not held to a fiduciary standard.

Ask your adviser, "Are you a Registered Investment Adviser?"

Registered Investment Advisers, or RIAs, are required to meet a fiduciary standard. In addition to providing individually tailored investment advice, some RIAs manage investment portfolios and many offer financial planning services.

Consult a financial planning organization

There are many financial planning organizations that require their members act as a fiduciary for their clients. This may be a good place to start. The following organizations have a fiduciary requirement:

• NAPFA
• Garrett Planning Network
• XY Planning Network
• Certified Financial Planner Board of Standards
• Alliance of Comprehensive Planners

Look for an adviser who is a CFP, or a CPA-PFS

These advisers have the credentials to provide comprehensive financial planning in addition to investment management services. As you age, you need someone who takes the time to understand your big picture and helps protect you from bad financial decisions such as taking too much risk in the stock market. CFPs and CPA-PFSs also can act as intermediaries between you and your future financial caretaker to help you determine when you need help managing your finances.

• CFP - Certified Financial Planner. While many professionals may call themselves "financial planners" CFP professionals have completed extensive training and experience requirements and are held to rigorous ethical standards. CFPs are required to meet a fiduciary standard.
• CPA-PFS - Certified Public Accountant, Personal Financial Specialist. These CPAs specialize in financial planning. All CPA-PFS's have passed a comprehensive financial planning exam that covers personal financial planning, including tax, estate, retirement, investments, insurance planning, and elder planning.

Ask your adviser "How are you paid?"

Roughly speaking, there are 4 ways that advisers are paid. Each has its pro's and con's, depending on your specific needs.

• Assets under management(AUM) plus commissions. This is still the most common payment model. Clients are charged a fee based on the amount of money the adviser is managing, usually between 1% and 2% of assets annually. These fees have the benefit of being transparent and easy to calculate, but they usually run higher than other fee models, and may or may not include financial planning services.
• Hourly or Time-Based. Advisers charge by simply billing you for the hours they spend working for you. This model can work well if you have limited assets and/or have very well-defined needs.
• Project-Based. Advisers charge you a flat fee for a specific project. For some, adopting this model can be a good way to address specific needs and get to know your adviser better. May not be suitable if you need a full range of finanical planning services.
• Retainer or Subscription-Based. Advisers charge a flat fee based on the perceived complexity of your needs. Some advisers use this approach in combination with the AUM model, where the retainer fee covers financial planning services. This approach also has the benefit of transparency, as it usually entails a flat monthly fee.

In general, older adults rarely need to be sold new investment products that generate commission fees for the adviser. And if you do not have a lot of money, advisers do not have incentive to provide additional planning services under an AUM model. However, advisers managing larger amounts of money may provide comprehensive services. So if you have the means, working with a fiduciary adviser who employs the AUM model alone or in combination with a retainer fee for financial planning can be a good way to go.

For many older adults and families, advisers who charge hourly, by project, or by retainer may be the most appropriate. For very complex needs, a retainer-based planner is most likely the best fit. For simple planning needs, and hourly planner will most likely be more cost effective.

Are you comfortable with the adviser?

The most important criteria are your comfort and trusts levels. You want an adviser who listens, understands your needs, and does a good job yet is willing to speak up and stand up to you when you are making mistakes or losing the ability to manage your finances. These types of advisers are not yet the norm, but with more and more advisers meeting fiduciary requirements, they are becoming easier to find.