The “F” Word in Finance and Why you Should Start Using it
Written by: Jennifer Gattinger, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
C’mon, I know what you’re thinking, and no, it’s not that “F” word.
I’ll give you a clue. This one has 9 letters. Any guesses?
Fiduciary.
Now I’m about to say something that may shake your financial world.
Before we get into it, let’s look at financial professionals, most specifically the financial advisor. Financial advisors help people manage their money by assisting with budgeting, investments, and estate planning, among other things. Working with a financial advisor may automatically sound like a great choice, but hold that thought for a minute. You see, not all financial advisors are created equally.
What does that mean? It means that some financial advisors have years of education and professional certificates, while others do not. It means that some financial advisors are making their living by earning commissions off of the financial products they are selling you, while others are not. Furthermore, it means that some are held to fiduciary standards, while others are not.
Now, what does that all boil down to? It boils down to the fact that not all financial advisors necessarily work in your best interest, even if they come across as being “financial experts.” Simply put, some advisors are salespeople trying to make a nice commission.
If you choose to work with a financial advisor, you want to make sure they are fiduciary. Fiduciary advisors are transparent. They disclose conflicts of interest and make recommendations based on your best interest. They also work on a fee-only basis. The fact that they earn their money on a fee-only basis, as opposed to commission, kickbacks, or other incentives, puts them in a position to give you unbiased advice.
Below are some questions that you can ask your prospective financial advisor before deciding to work with them:
Are you fiduciary? Fiduciary advisors have the ethical duty to work in your best interest, while non-fiduciary advisors recommend “suitable” products. “Suitable” products are oftentimes not in your best interest. Make sure your advisor is fiduciary.
How are you compensated? If an advisor is compensated by commissions or other company kickbacks or incentives, know that their main priority is to sell you their chosen products. Again, if you choose to work with a financial advisor, it is recommended to work with a fee-only advisor, as they provide the most unbiased information.
What qualifications do you hold? While many financial advisors have professional training and education and credentials such as CFP or CFA, others are simply salespeople who have completed short certifications and come across as financial experts.
Where can you find fiduciary financial advisors, you may ask? You can start by checking out the National Association of Personal Financial Advisors (NAPFA) website, which allows you to search for fee-only, fiduciary financial advisors in your area. That said, run through the questions above, along with any others you may have, with potential advisors to help find one that you feel comfortable working with.
So, the next time you see that financial advisor in your Facebook group offering you “free” financial advice and then trying to sell you a specific product, such as life insurance, refer to some of the questions listed above to see whose best interest is being looked after. And remember that “free” advice may not be so “free” after all, especially if you end up paying years for financial products that you don’t need.
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Read more from Jennifer!
Jennifer Gattinger, Executive Contributor Brainz Magazine
Jenny is a personal financial coach with a passion for helping millennials reach their financial goals. Having completed a degree in Economics, along with Dave Ramsey’s Financial Coach Master Training, she teaches them how to organize their money and put it to work so that one day, sooner rather than later, they won’t have to. A millennial herself, Jenny’s financial savviness has allowed her to follow her dreams of travel and visit 50+ countries as well as compete internationally in two different sports, all while maintaining a sense of financial wellbeing.
