Is Your Advisor Really Looking Out for You?

I have always said that if you are looking for the best financial advisor, just look into the mirror. You have everything it takes to manage your financial life, and there is no one more motivated to make smart decisions. How you choose to spend, save and invest your money impacts your quality of life more than any professional advisor you will hire.

That said, I have no problem if you want to work with a professional advisor. A good advisor can be worth his weight in gold. (Yes, he. There are still way too few female financial planners and advisors.)

But if you decide to hire a financial advisor you need to make sure he will always act in your best interests. Don’t get caught up in how nice he was, or how professional he seemed. Realize when you meet with a potential advisor he is making a sales pitch to get your business. You don’t want marketing promises, you want documented proof.

The single most important document you want is a simple statement signed by an advisor that he will always act as a fiduciary when giving you advice. The word “fiduciary” is key. It’s a technical term that means the advisor puts your best interests ahead of his. A fiduciary does not earn commissions on products he has you invest in. That is a crucial protection that will keep you from working with someone who has conflicts of interest.

For instance, many brokers are not fiduciaries. They accept commissions for investments they recommend to you, and they may also collect sales bonuses or other fees from their employer or the investment provider (such as a fund company or insurance company) for getting you to invest in a certain product. None of that is necessarily bad. Commissions are a perfectly legal way to pay a broker. But where it gets troublesome is when a broker suggests an investment with a high commission when he could have recommended a similar investment that would cost you less.

Fiduciaries don’t have this conflict of interest.

A federal regulation that would have required anyone giving retirement advice to act as a fiduciary was recently killed by a court decision, and the Trump administration chose not to fight for this important consumer right. Grrr. That makes it ever more important to make sure anyone you rely on for financial advice will always act in your best interests.

You can also use the free Broker Check tool to make sure an advisor has not been charged with misconduct.