Several years ago there was a lot in the news about a “fiduciary rule” that was going to change how advisors worked; the imposition of a fiduciary standard of behavior meant that advisors would have to make decisions and recommendations for their clients in their clients’ best interests, and not their own.
Otherwise, “advisors” could charge commissions and earn fees on investments and other financial products that were perhaps questionably in their client’s best interests, but were definitely in the advisor’s best interests.
‘Fiduciary’ means essentially making decisions based on the best interests of someone beside yourself. While this isn’t a foreign concept to most people, it is not necessarily human nature. After all, survival instincts naturally tend toward self-preservation, not altruism. However, as advisors, we are in the unique position of helping others with decisions that require not only objectivity to understand available options, but professionalism and expertise to advise and recommend the best course of action for a particular individual’s circumstances.
Even though the “fiduciary rule” was not ultimately enacted as part of the regulatory scheme for financial advisors, some of us have always made it our practice to only make recommendations in our clients’ best interests. It is easier to do that when your income is not based on commissions from sales. “Fee only” planners are compensated solely by the client with neither the advisor nor any related party receiving compensation that is contingent on the purchase or sale of a financial product. Fees are usually paid through the investment management of one or more portfolios based on a percentage of their value, or in some cases for consulting work done on an hourly basis.
A question to ask yourself if you have a financial advisor would be are they acting in a fiduciary capacity for you?