Who Is & Who Isn’t A Fiduciary - Ep. 500

Feb 26, 2020

This week, I’m talking about the fiduciary standard in the world of financial advice. What is a fiduciary and why should you care?

Today, I’m talking about who is and who isn’t a fiduciary, and how you can tell the difference. 

But first, I want to take a pause to celebrate because today marks episode 500 of the One Minute Retirement Tip! The podcast continues to grow every month thanks to you, and I love receiving emails and comments from you in the reviews, so thank you so much for being a listener and if you’re finding this podcast valuable, consider sharing it on social media or telling a friend who is close to retirement. 

Alright, back to today’s topic. It’s actually really difficult to tell who is and who isn’t a fiduciary, unless you know what you’re looking for and you’re the 1% who reads the fine print of all the documents you sign and all the disclosures that your advisor sends to you. 

The biggest giveaway that will tell you if they are a fiduciary is whether or not your advisor is a fee-only advisor. Back in 2015, CNBC released its second annual list of the “Top 100 Fee-Only Wealth Management Firms” to the public. The joke was that when you looked under the hood at the top 10 “fee only” firms on the list, 9 out of 10 of them share in insurance commissions, own an insurance agency, or are under common ownership alongside an insurance affiliate to which advisory clients are referred.

In other words, 9 out of 10 of CNBC’s “Top Fee-Only” firms are not actually fee only! And since they can and do receive commissions on selling insurance products, they aren’t fiduciaries to their clients in all circumstances either. So if CNBC can’t tell the difference, how can you?! 

There are a few tell-tale signs though that aren’t fool-proof but definitely help: 

1. First off, you could just ask “are you a fiduciary”. If your advisor is honest, which most are, they should be able to explain whether or not they are a fiduciary
2. Another good question to ask is if they receive other types of compensation other than what you’re paying them. Fiduciary advisors are fee-only, meaning the only compensation they receive is from the advisory fees you pay them, usually on a quarterly basis. Non-fiduciary advisors often receive other types of compensation and how they’re paid will often be an indication of their fiduciary status. This might include commissions or trading fees, incentives from their firm (like a higher payout for selling more of a particular type of investment), or soft dollars - usually compensation directly from mutual fund companies. For example, at my old firm, if I bought a Vanguard fund for a client, I couldn’t get paid on that. But I could get paid with a laundry list of other mutual funds. I’m not going to work for free, so if Vanguard was truly the best option for that client, I had a potential conflict of interest. So be sure to find out all the ways your advisor gets paid.
3. When you buy or sell a stock, mutual fund, a life insurance policy or an annuity is there a commission that your advisor gets paid? If they receive a commission, then they are acting in the role of salesperson and aren’t a fiduciary. 
4. The last way to tell if often just looking at the firm they work for - any advisor who works for a large brokerage firm - think Edward Jones, Wells Fargo, Merrill Lynch, etc. is unlikely to be a fiduciary - they might be in some situation, but advisors working at big firms are dually registered, meaning that they are fiduciaries in some circumstances, but then they can take that hat off whenever they need to in order to sell you an annuity or get paid a commission.

The biggest giveaway regarding fiduciary status is how your advisor gets paid. If it’s solely on fees paid by you, and they receive no commissions, they are a lot more likely to be a fiduciary and upholding the highest standard of care in their dealings with you as the client. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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