Is Your Financial Advisor a Salesman or a Fiduciary?

I need a new car.  Perhaps I’ll go to a dealership and ask a car advisor to give me advice on what I should buy that would be the best fit for me and my family.  I’m sure I’ll get the best possible deal available.  That sounds a little naive, doesn’t it?

Obviously, the car salesman is not exactly an advisor.  His job is to sell cars for his dealership and his motivation is to earn the highest commission he possibly can on a specific vehicle.  That’s not a bad thing.  His family deserves to eat.  The salesman is a trained professional whose job is to employ various tactics to consummate the sale.  This doesn’t mean the salesman is a bad person or that  the consumer is not getting a quality car for a good price.  But a lot depends on the character of the car salesman and the astuteness of the purchaser.  This is the essence of caveat emptor (buyer beware) and there is nothing wrong with that.

In this example, the car salesman is not a fiduciary but an agent of the dealership.  A fiduciary is legally, ethically and morally obligated to always act in the best interest of the client. 

Many investors seek counsel for their situation with financial product salespeople, most of whom are NOT fiduciaries.  The “advisor’s” job is to sell financial products for their broker-dealer.  With recent market turbulence, some Wall Street brokerage firms are fighting to maintain this distinction to minimize their liability.  Meanwhile, they cultivate the public perception that their agents are acting in the best of interests of investors.

The benchmark for fiduciary responsibility and competency among financial advisors is the Certified Financial Planner (CFP) license.  All Certified Financial Planners are fiduciaries.  The first thing to look for in finding an advisor dedicated to integrity, competency and prudence is the CFP designation.  

Ask your financial advisor if he is a fiduciary.  If you don’t like the answer, the National Association of Personal Financial Advisors (NAPFA) is a great source of information on the financial planning industry and how to find a qualified Certified Financial Planner: www.napfa.org.

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