Is a Certified Financial Planner a Fiduciary?

Many people are confused about the credentials and training required for fiduciaries and other financial professionals. Understanding the important differences between financial planners, financial advisors and what it really means to be held to a fiduciary standard is crucial for successful financial planning.

Learn more about the important differences in accountability between different types of financial planners and advisors and what it really means to be a fiduciary.

Certified Financial Planners as Fiduciaries

fiduciaries are required to act in the best interests of their clients when providing financial advice - even if those interests are in conflict with their own. It’s a legal and ethical distinction that holds financial planners to the highest standard of care.

As of October 2019, the Certified Financial Planner Board of Standards, Inc. will require all certified financial planners (CFPs), including brokers, to be held to the fiduciary standard. Following a two year review, the Certified Financial Planner Board of Standards, Inc. revealed the revised CFP Board’s Code of Ethics and Standards of Conduct in March 2018. Under the previous code, the fiduciary standard only applied to CFPs when they were involved in financial planning with their clients.

“We are further separating ourselves from the pack to be the leading designation,” CFP Board chief executive Kevin Keller said. “Once these changes are implemented and enforceable, there will be no equal in terms of our standard for competency and ethics.”

The new CFP rules mandate that a mark holder must disclose and manage conflicts of interest and adopt business practices that are “reasonably designed to prevent material conflicts of interest from compromising their ability to act in the client’s best interests.”

Fiduciaries and Financial Advisors

This new rule does not mean that all financial advisors are fiduciaries. In fact, far from it. Authors of “The Index Card”, Helaine Olen and Harold Pollack explain, “a financial advisor working to the fiduciary standard has a legal duty to act in your best interest and is not getting paid to steer you into buying overpriced investment products you don’t want or need. A majority of men and women offering financial advice don’t work to the fiduciary standard.”

Financial planners who are fiduciaries work on asset-based fees, and do not receive transaction-based compensation. This eliminates unnecessary trading and protect against improper practices, like account churning, that do not benefit the client. Any fiduciaries who have a potential conflict of interest, like earning a commission off selling a product, must reveal it or eliminate it.

Additionally, fiduciary advisors will:

• hold themselves to the fiduciary standard at all times.
• put agreements and any disclosures in writing.
• be transparent about what they pay and receive from fees from third parties.
• avoid or mitigate conflicts of interests.
• avoid commissions.
• demonstrate baseline knowledge and competence.
• help minimize expenses.
• have an investment policy that expresses assumptions about goals and risks

Having a financial planner that is held to the fiduciary standard can give you peace of mind. When seeking a fiduciary financial planner, it’s important to ask the right questions. Be sure to ask if your financial planner is a fiduciary at all times. Some advisors are held to the fiduciary standards in some dealings and not others.

While hiring a financial planner can feel intimidating, it’s an important step to help you feel confident about your financial future. Planner and advisor fees vary and finding one that is a fiduciary and works with your best interest in mind is crucial to giving you peace of mind and a successful financial plan. Connect with a fiduciary financial planner and begin a trusted relationship that helps give you financial peace of mind.

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