How do you know if a financial planner is a fiduciary?

1. Ask Directly

The simplest way to find out if a financial planner is a fiduciary is to ask them directly. Inquire whether they adhere to a fiduciary standard and if they are willing to put this commitment in writing. A reputable fiduciary should have no hesitation in affirming their status.

2. Check Credentials

Look for specific certifications that indicate a fiduciary duty. Common fiduciary credentials include:

• Registered Investment Advisor (RIA): RIAs are required to adhere to fiduciary standards under the Investment Advisers Act of 1940.
• Certified Financial Planner (CFP): CFPs must abide by fiduciary standards when providing financial planning services.
• Chartered Financial Analyst (CFA): CFAs also adhere to a code of ethics that emphasizes client interests.

3. Review Their Form ADV

If the planner is an RIA, they must file Form ADV with the SEC or state regulatory authorities. This form provides detailed information about their services, fees, and fiduciary status. You can usually access it online through the SEC's Investment Adviser Public Disclosure website.

4. Examine Their Compensation Structure

Fiduciaries typically charge fees based on a percentage of assets under management, hourly rates, or flat fees. This structure aligns their interests with yours. If a planner primarily earns commissions from the products they sell, they may not be acting as a fiduciary.

5. Read Client Reviews and Testimonials

Research online reviews and testimonials from other clients. While not definitive, feedback can provide insights into the planner’s commitment to putting clients first and their overall reputation.

6. Check Professional Associations

Membership in professional organizations, such as the National Association of Personal Financial Advisors (NAPFA) or the Fee-Only Network, often indicates a commitment to fiduciary principles. These organizations typically require their members to act as fiduciaries.

7. Request a Written Agreement

A fiduciary should be willing to provide a written agreement outlining their responsibilities, including their fiduciary status. This document can clarify the scope of their services and their commitment to acting in your best interests.

8. Investigate Their Disclosures

Review any disclosures they provide. Fiduciaries are required to disclose potential conflicts of interest and must be transparent about their fees. Pay attention to any language that suggests they may not be fully committed to a fiduciary standard.

Conclusion

By following these steps, you can effectively determine whether a financial planner operates as a fiduciary. Making informed choices in selecting a financial advisor is crucial for safeguarding your financial future