Choosing a “True” Fiduciary: Putting Your Financial Success First

By Jeffrey Meenes, CFP® (Published Date October 26, 2023)

When it comes to selecting an individual to manage your finances, trust is paramount. Who can you rely on to help you make the best decisions for your assets? How can you ensure you receive tailored financial advice, rather than a generic, one-size-fits-all "financial plan"?

The answer is simple: work with a fiduciary, but not just any fiduciary—a true fiduciary.

The term "fiduciary" has gained attention in the media due to proposed changes in financial regulations, yet it remains misunderstood by those outside the industry.

What is a Fiduciary?

It may surprise you that not all financial professionals are legally obligated to act in your best interests. Why? Because not all advisors, or those who claim to be advisors, are fiduciaries. There exists a significant disparity in the financial advice industry between "fiduciary" advice and "suitable" advice.

What sets them apart? The Fiduciary Standard represents the highest level of financial care mandated by U.S. law, requiring advisors to prioritize their clients' best interests. This ethical code is adhered to by Registered Investment Advisors (RIAs) and enforced by the Securities and Exchange Commission (SEC).

In contrast, the Suitability Standard merely demands that brokers offer recommendations appropriate to a client's general situation, without the necessity of these suggestions being in the client's best interest. Under U.S. law, non-fiduciaries have the legal authority to place their clients' interests last without facing consequences. This can put clients at a disadvantage.

The primary distinction lies in how advisors or brokers are compensated. While both may provide investment recommendations, their advice can be influenced by their method of payment. Different incentives lead to different recommendations. Brokers are remunerated by executing trades and/or promoting one financial product over another, which can lead to the deliberate execution of unnecessary trades to collect excessive (and often concealed) fees from their clients' accounts. In fact, the government estimates that individual retirement accounts alone relinquish $20 billion annually to self-serving investment advice, draining resources that could be used to enhance a client's financial plan and secure their future.

Whenever compensation influences financial advice, a fundamental conflict of interest arises. With such a conflict in place, there's no guarantee that the provided recommendations genuinely aim to boost the client's prospects for success; they may prioritize the advisor and their firm. In contrast, fiduciary advice centers solely on advancing the client's core financial interests without compensation-related conflicts.

Not All Fiduciaries are Created Equal—Finding the Right Fit

Identifying a "fiduciary" is just the initial step because not all fiduciary firms or advisors possess the expertise, personal dedication, or time to provide the highest level of fiduciary care.

When significant market and economic events occur, such as the COVID-19 pandemic or the Great Recession, each client's financial plan requires prompt and individualized attention. Time is money. In such scenarios, your advisor should meet and engage with clients to address the impact of these changes and adjust their plans accordingly. Will your advisor devote the necessary time to meet with each client when it's most critical? Can they align these adjustments with each client's overall financial picture?

For firms overwhelmed by clients, one of two outcomes usually transpires: either (1) advisors apply a uniform solution to all clients, regardless of individual circumstances, or (2) they develop unique, personalized solutions for each client, but it takes months before these changes are implemented, potentially resulting in substantial financial losses or inappropriate risk exposure. This isn't what true fiduciary service entails.

The reality is that many "fiduciary" advisors prioritize increasing their Assets Under Management (AUM) over providing individualized care. Genuine fiduciary financial advice places client success above all else, even if it means the advisor's growth or firm expansion takes a back seat.

Because an advisor's ability to serve clients in a fiduciary capacity is influenced by their client load, I exclusively offer my services to a limited number of professionals who seek a high level of care and engagement from their financial advisor. My client's well-being will never be compromised for the sake of my firm's growth. This model enables me to offer timely, high-quality advice untainted by personal gain.

If you’d like to learn more about how Meenes Wealth’s true fiduciary services can benefit you, we’d be happy to discuss it with you during a complimentary Get Acquainted meeting.