A term growing in popularity in the financial advisory industry in recent years is the term “fiduciary.”
What is a fiduciary?
A fiduciary is any person or organization legally obligated to act in the best interest of another person. In other words, when one party accepts a fiduciary responsibility over another, they are held to a legal standard to use their position or expertise to make the best recommendations or decisions for their client, even if it does not benefit the party making the recommendation.
Fiduciaries are not just financial advisors. They can be accountants, legal guardians, bankers, board members, etc.
Fiduciaries hold not just a legal responsibility but an ethical one as well.
So, why is it so essential to hire a fiduciary?
Believe it or not, not everyone providing financial advice acts as a fiduciary. Conflicts of interest exist in this industry. This could include recommending products that pay out a higher commission even if it is not the most beneficial product for the individual. It could mean selling an insurance policy the client doesn’t need. It could mean recommending the client not move their money out of their investment account when it is in their best interest because the advisor’s payout is affected.
Hiring a fiduciary helps put your mind at ease as a client.
There are two main reasons a client might not follow their advisor's advice. One reason is they feel the advisor’s advice is just plain bad advice. That is a competency issue, meaning you should question if you have hired the right advisor. Why hire an advisor if you know more than them in their area of expertise? The second reason would be if you feel the advisor is making a recommendation that benefits them more than you. Hiring a fiduciary should take the latter concern off the table.
How to know if your advisor is a fiduciary?
There are a couple of ways an advisor can be considered a fiduciary.
RIA
If an advisor is an RIA (Registered Investment Advisor) this means they are registered with the SEC. The SEC requires advisors to be fee-only, meaning they cannot accept a commission. The SEC also holds RIAs to a fiduciary standard.
Therefore, it is safe to say if your advisor is an RIA, they are a legal fiduciary.
CFP®
If your advisor is a CFP®, they are also held to a fiduciary standard governed by the CFP® board. CFP® stands for CERTIFIED FINANCIAL PLANNER and is one of the most coveted designations in the industry. Advisors do not become a CFP® by accident. It takes years in the industry and intensive training and studying. Hiring a CFP® should take both the fiduciary and the competency concerns we discussed earlier off the table when looking for an advisor.
AIF®
An AIF® is yet another designation advisors can have after their name, which would indicate whether they are fiduciaries. AIF® stands for Accredited Investment Fiduciary. This is a professional designation that demonstrates the advisor has met specific requirements to earn and maintain the credentials.
There are other professional designations and ways your advisor can become a fiduciary, but these are the most common.
Are Summit Wealth Group Advisors fiduciaries?
We get this question a lot considering Summit Wealth Group is not an RIA. The short answer is that Summit Wealth Group is not, but the advisors who represent Summit are.
Summit Wealth Group is considered an IAR under the independent broker-dealer Commonwealth Financial Network. We believe this business model gives us the best chance to provide our clients with the highest level of service through the back-office support and investment products available through Commonwealth.
Being an IAR means we are governed by and register with FINRA, not the SEC. FINRA holds advisors to a suitability requirement which is similar but not quite the same language as the SEC's fiduciary standard. Advisors who register with FINRA may only recommend "suitable" products for their clients and must always be able to justify their advice or recommendations with the suitability requirement in mind.
Some people believe that the language in the FINRA suitability definition does not go far enough to help ensure that advisors are held to the highest standard when caring for their clients.
We agree.
Therefore, at Summit, our advisors are expected to obtain the AIF® and/or CFP® designations within a year of joining Summit. In addition, every client has at least one advisor who is a fiduciary looking after their accounts. This way, our clients can have peace of mind knowing that with each meeting, every email, or phone call with their Summit Wealth Group advisor, they receive advice that is not only competent and of the highest level but also free of conflict of interest.
Call us if you have any further questions regarding the fiduciary standard and how it applies to Summit Wealth Group.