Before hiring a professional to manage your investments make sure you understand a fiduciary vs. nonfiduciary financial advisor.

When considering a financial advisor you’ll come across the term “fiduciary.” Not all financial advisors are fiduciaries, so what does it mean? Here’s what you need to know.

A fiduciary is obligated to look out for you

A financial advisor who is a fiduciary has a legal obligation to act in your best interests. When making recommendations they have a duty to do what’s best for you, not themselves.

A fiduciary must be transparent about their fees and commission, as well as an investment’s potential risks and rewards.

A fiduciary’s recommendations should always be based on what’s best for you and the outcome you seek. Any action they take on your behalf requires your informed consent.

It would be a breach of fiduciary duty for a fiduciary financial advisor to guide you toward investments that result in higher commission for them or their employer. However, a financial advisor who is not your fiduciary has no duty to act in your best interest.

How financial advisors get paid

Compensation for financial advisors typically falls into one of these three categories: advisory fees, commission and hourly-based fees. Some advisors charge a combination of commissions and fees.

Advisors who manage portfolios often charge a percentage of assets managed. For example, an assets-under-management fee of 1% on an account worth $100,000 results in an annual cost of $1,000.

Some advisors charge a flat fee or an hourly rate and are known as fee-only advisors. Flat fees start around $2,000 for a year’s worth of service and hourly rates may run $120 to $400 or more.

When hiring a financial advisor, make sure any fees or commission are described in your contract. An advisor may–or may not–be open to negotiating fees and commissions.

Is paying an advisor worth it?

For many people, hiring an advisor is worth it because their advisor has expertise that helps them achieve short- and long-term financial goals. Plus, using an advisor frees up their time to do other things.

Choosing a financial advisor

Of course, you need a financial advisor you can trust. Additionally, your advisor needs to be someone who you can communicate with easily. Check out their experience and credentials. Ask family and friends for recommendations.

We invite you to consider investment services where you already bank. The CFS* financial investment advisors at Consumers Credit Union can work with you to develop a strategy that will help you reach your goals, such as saving for retirement or a child’s education.

 

 

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Consumers Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Federally insured by NCUA