“He was a nice enough guy, but he immediately jumped to insurance, which turned me off. It didn’t really feel like he was putting my needs first,” said my friend recently.
“Well if he strictly just sold you that insurance policy, then he actually wouldn’t be required to put your best interest first,” I replied.
This friend had booked a consultation with an advisor and pretty quickly decided against hiring them. She seemed surprised by my answer, but this is often the case when you meet with an advisor.
A fiduciary is anyone acting on behalf of a person or organization with the standard of putting first the best interest of that person or org. If you’ve ever sat on a board, you’ve probably had to adhere to this standard — I know I have! As I’ve served on nonprofit boards over the years, my fellow members and I have had to consider only the organization’s best interests during votes and discussions. As you can imagine, this was a responsibility that we were happy to take on.
Some financial advisors act as a fiduciary … and some do not.
Fee-only financial advisors are required to adhere to a fiduciary standard. Fee-only advisors are compensated directly by their clients for advice and for the ongoing management of assets. As a fee-only firm, Merino Wealth doesn’t accept commissions for our work. It’s a recent change that helps us to minimize our conflicts of interest and requires us to continue putting our clients’ best interests first by following a fiduciary standard.
If an advisor is not a fiduciary, then they have to adhere to a suitability standard. This means that the advisor needs to have a reasonable basis to make a recommendation. They are required to move forward with some due diligence so that they understand the client’s situation well enough to make a prudent recommendation, but they don’t need to put the client’s best interests first. Yes, you read that right. They DO NOT need to put the client’s best interest first.
In the defense of non-fiduciary advisors, I will say that sometimes they’re not in a position to adhere to a fiduciary standard. At Merino Wealth I like to say that we help our clients with “the ins and outs of their finances.” We look at everything from how much cash they’re holding, what benefits their employer offers, how much they spend on groceries each month, the balance in their 401(k), and everything in between. That level of detail enables us to take a deep dive into our clients' lives so that we can have an open dialogue about what’s important to them financially.
From there, we strive to put our clients’ best interests at the forefront of our recommendations to help them achieve what they want with their money. This definitely isn’t the approach that my friend’s advisor had taken when recommending that insurance policy to her.
Hiring a fiduciary isn’t for everyone. But at Merino Wealth, we love the work that we do and are excited to operate now as a fee-only firm. Want to see if we can help you to reach your financial possibilities? Get started with us here!