Thanks for coming back to Telos Financial’s blog where I discuss different finance related topics. The purpose of the blog is to introduce financial planning concepts and questions I receive from clients that I believe are important. I want to start discussions about that will educate, benefit, and improve your financial life. Ultimately, to help you focus on your telos!
As a CFP® professional, I am a fiduciary and work to put my clients interests first. It’s one of the commitments I make to every family I work with and is very important to me. I think there is a lot of confusion about what this means, so I hope to help clarify with this blog!
Do you currently work with a financial advisor? The title financial advisor or financial planner is really broad and there aren’t many rules around using these unlike with other professionals such as attorneys or doctors. There are special designations like the CERTIFIED FINANCIAL PLANNER™ designation (CFP®), by the CFP board, or the Chartered Life Underwriter (CLU®) certification by the American College that require significant costs, testing, studying, experience, time, and commitment, but these are not mandatory to call one’s self a financial whatever.
That’s one of the reasons working with someone who has additional certifications or education is important. It allows them to demonstrate they are committed to their craft, rather than just talking about it. Like the CFP board’s commercials demonstrate, anyone can use jargon and try to sell something, but having a designation helps evidence they are serious about their career.
Further, the CFP® designation requires the designee to take an annual oath committing to be a fiduciary, and you can lose your designation if you don’t act as one. As required in the Standards of Professional Conduct: “A certificant shall at all times place the interest of the client ahead of his or her own. When the certificant provides financial planning or material elements of financial planning, the certificant owes to the client the duty of care of a fiduciary as defined by CFP Board.”
Wasn’t there some law that requires everyone to be a fiduciary? There was legislation proposed under the Obama administration by the Department of Labor that would’ve required anyone working on a retirement account (driven through work retirement plans) to be a fiduciary legally. This was a hotly debated rule and would’ve changed quite a few things for some advisors, mainly making things more transparent, limiting or removing commissions, along with a lot of other changes.
This proposed rule ended up being removed by the following administration. There is currently a proposal by the Securities and Exchange Commission (SEC) that will replace the DOL rule that was trashed, but it’s still in the early stages. So, as of the publication of this blog, there is no legal requirement for advisors to be fiduciaries.
I believe the industry is long overdue for some change like this. Whether there’s a legal change or done through some fancy marketing tactics, I’d like to see the industry evolve similar to accounting industry. Anyone can do your taxes, but Certified Public Accountants (CPA) are widely recognized as the gold standard for accountants. I think the CERTIFIED FINANCIAL PLANNER™ designation (CFP®) needs to become to financial planning what the CPA is to accounting. There are other certifications for tax preparers that are credible and valuable, but CPA is known and recognized by everyone.
So, is your advisor a fiduciary? If you don’t know, you need to ask. If they’re a CFP® professional, they should be acting as a fiduciary. A fiduciary advisor should be able to easily and readily answer the question.
Are they a fiduciary all the time? Part of being a fiduciary means that your advisor should always disclose costs and any pertinent details related to the discussion. If your advisor is elusive, lacks transparency, or won’t answer your questions, they may not be acting as a fiduciary.
Someone can claim to be a fiduciary and not always act as such. The CFP board requires “At all times when providing Financial Advice to a Client, a CFP® professional must act as a fiduciary, and therefore, act in the best interests of the Client.” It’s really important that you have an open and trusting relationship with your advisor, so you know they’re acting in your interest and you are able to be sure if you have any questions.
Why should you care? You should care because someone in a trusted position should be giving you advice that is in your best interest. There may be a lot of recommendations that financial advisors make that will be mutually beneficial. They may benefit you as a client but they may also benefit the advisor in the way they are compensated. As a client, you need to know that the advisor is making the recommendation to you because it’s in your best interest, not because they get the highest commission.
What do I do if my advisor isn’t a fiduciary? If your advisor isn’t a fiduciary, you should evaluate your relationship. Have they treated you fairly and in good faith? Have they been ambiguous about their fees or costs you pay? Do you feel you can trust them? Ultimately, it’s a personal decision if you trust them. There’s no requirement for you to work with a fiduciary advisor, but I feel it’s the best way in the current environment to make sure they are acting in your best interest.
Make sure to check out my website for more information and blogs on other topics. Call or email me to schedule an appointment and free consultation with me to review your financial situation.
Telos Financial is a Michigan’s financial planner for Xennials, Millennials, Generation Xers, & young professionals. It is a fee based, holistic firm, providing financial advice located in Plymouth, Michigan serving young professionals and families. Dennis LaVoy, CFP®, CLU® founded Telos and uses his experience, knowledge, and expertise by providing financial advice to families and individuals in Ann Arbor, Detroit, surrounding areas, and across the country achieve their financial objectives.
The views expressed are my own opinions and do not apply to every situation. Your situation may vary so make sure to consult a professional for advice prior to making any decisions.