"What is a Fiduciary?" Understanding How Registered Investment Advisors and CFP® Professionals Put Clients First

Managing finances on your own can feel like trying to steer a ship in the middle of a storm. Between work and other day-to-day responsibilities, it's common for folks to feel worn down by tracking the onslaught of moving parts in pursuit of major financial milestones - like buying a house, retiring, or saving for college.

This is where a financial advisor comes in. Partnering with a financial planning team can provide clarity and actionable steps to define and pursue your goals, ultimately helping increase confidence in your financial future.

Once you’ve made the decision to work with a financial advisor, the question then becomes: How do I choose an advisor I can trust?

Building a Foundation of Trust

You may be surprised to learn that not all financial advisors have been legally required to act in their clients' best interests. In fact, a 2019 study by Personal Capital shows that nearly half of Americans falsely believed all advisors were legally required to put their clients’ best interests first.  That changed somewhat in June 2020, when Regulation Best Interest (Reg BI), a financial advice reform package adopted by the SEC, went into effect.  Reg BI now requires brokers to behave more like a Registered Investment Advisor (RIA), stating that they must "act in Client's best interest," but only at the time of giving advice, with no requirement for ongoing monitoring or management.

The fact remains not everyone in the financial industry is licensed in the same way, or offers the same breadth of financial services and products.  At Comprehensive Wealth Management (CWM), we offer a holistic, planning first  approach, going in-depth to look at the needs and goals of the client before making recommendations.

CWM advisors are fiduciaries, which are individuals who are obligated to put their clients’ needs first. As the Personal Capital study demonstrates, very few people understand this term. Let’s unpack what it truly means to be a fiduciary, and its significance to thoughtful investors.

fi·du·ci·ar·y – The Textbook Definition

Merriam‐Webster defines a fiduciary as, “One often in a position of authority who obligates himself or herself to act on behalf of another and assumes a duty to act in good faith and with care, candor and loyalty in fulfilling the obligation.”

CWM adheres to the fiduciary standard in two ways. First, being registered with the Securities Exchange Commission as a Registered Investment Advisor (RIA) means we are legally held to this standard. Second, advisors who hold the Certified Financial Planner™ (CFP®) certification are required to put their clients’ interests first at all times.

It's important to know that neither fees nor commission solely qualify or disqualify an advisor from working under the fiduciary standard.  The most important factor is whether the recommended investment product is right for you and your goals.

To verify that the professional or firm you’re working with is a fiduciary, ask whether your advisor or broker adheres to the “fiduciary standard." Charles Schwab has a terrific white paper on “How Do I Choose the Right Advisor?” that offers additional tips, including ideas for questions to ask advisors, such as:

    ◦ What are your credentials?
    ◦ Are you a fiduciary?
    ◦ Do you offer the services I need?
    ◦ How are you compensated?
    ◦ How will we work together?
    ◦ How will you gain an understanding of my situation, and how will that knowledge help to inform your recommendations?
    ◦ How do you approach investing for people like me?
    ◦ Where will my assets be held?

The Golden Rule in Action

Although we want to imagine a world in which every advisor treats a client how they would want to be treated, we know this doesn’t always play out in reality. Here’s an example of when relying on a fiduciary advisor is key.

Let’s say a CWM advisor learns that a client has funds available to be invested but is saving them for a specific, short-term purpose. Although some advisors may view those funds as an opportunity to bring in revenue, the CWM fiduciary is legally obligated to look holistically at the client’s financial situation and evaluate their needs and goals. Because the client has designated those funds for another use within the next year, as a fiduciary, we would consider the risk that short-term market fluctuations could result in loss of portfolio value and, barring other factors, we would advise the client NOT to invest those funds in the market. Though the additional investments would increase the advisor’s short-term revenue, making the recommendation to do so would not be in the best interest of the client.

The Comprehensive Wealth Management Way – Putting Clients First 

In simple terms, a fiduciary embodies the concept of, “You before me.” As CWM President, Shilo Lockett states, “At CWM, we consider this model to be the lifeblood of our business. We are proud of the fact that our clients’ interests come first in every business decision, piece of advice, and strategic recommendation our advisors share. We always like to say, “ 'Great client service is our best marketing strategy,' ” because we truly believe that the services we provide must exceed our clients’ expectations if we wish to retain deep and lasting client relationships.”

A large part of our commitment to act in a client’s best interest is through regular communication and development of a personalized financial plan. Our recommendations are tailored to that financial plan, not sales quotas or incentives. Each plan is unique because every individual is unique, and we work with you to set our focus on long‐term financial goals— regardless of the day‐to‐day fluctuations in the market. We explore many different options and strategies that are available, with the goal of giving our clients confidence and hope for the future, rather than a fear of the unknown. Working together to continually revisit and update these financial plans enables us to account for the different variables and unforeseen events that life throws at you, make slight adjustments, and continue down the road toward your idea of living richly. By listening to our clients, then tapping into our ever-evolving arsenal of industry tools and knowledge, we take pride in helping you identify a more optimal path to financial independence.

At CWM, our commitment to doing the right thing goes far beyond the financial realm. We are proud to be a firm that treats every client like family, whose team members genuinely care about the individuals and families we serve (and even their pets – see our involvement with PAWS in honor of our beloved Linda McCormack). 

If you have additional questions about how to find a trusted fiduciary advisor, please don’t hesitate to call us at 425.778.6160 or fill out an appointment form here to schedule a complimentary, no-obligation phone call to help answer your questions.

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