Trusting financial advisers

Most of us could do with a little (or a lot) of guidance from a good financial adviser. But financial professionals vary not only by skill, but also by how much you can trust them.

It can help if the professional you’re dealing with is bound by an ethical requirement. Doctors, for example, take a Hippocratic oath to prevent disease whenever possible and respect patients’ privacy, among other things. There’s also a “fiduciary” duty that applies to many professionals, such as lawyers and real estate agents. It requires them to act in the best interest of their clients.

Many, but not all, financial professionals are also bound by fiduciary duty — and it’s well worth sticking solely with those folks. All Registered Investment Advisers (RIAS) and all Certified Financial Planners (CFPS) have a fiduciary duty when dispensing financial advice. They will have to act in your best interest, and may have other requirements, too, such as disclosing any conflicts of interest.

If your financial adviser is not a fiduciary, then they may simply be meeting a “suitability” standard, which means they can recommend any investment or action that is suitable for you. When there are several suitable options, they won’t necessarily recommend the one that’s best — especially if they have a conflict of interest, such as if they will receive a sales commission from one of the options.

Getting put in investments that are not best for you can mean that you’re paying higher-than-necessary fees, and that can cost many thousands of dollars over many years. Alternatively, one suitable investment might be a lot riskier than an investment that’s in your best interest.

Some financial professionals have a fiduciary duty for certain activities, but not all. When dealing with any pro, it’s best to ask if they’re bound by fiduciary duty for the services they’re providing you — such as for investment advice or tax planning.

You might also seek advisers designated as “fee-only,” who charge fees for their services but don’t earn commissions from selling you products. You’ll find some at napfa.org.