Updated January 16, 2024
If you want to be a fiduciary financial planner, what does it take to become a good one? This is a complex question.
More experienced and savvy financial planners will say that being a fiduciary planner involves taking on a holistic approach. You need to thoroughly assess clients’ situations, goals, needs, assets and cash flows to create a framework and provide recommendations that are in their best interests.
At the same time, even though they need to look at the bigger picture, fiduciaries can and should limit their scope of engagement. This saves you from getting flooded by an overwhelming number of tasks. But if the scope is too limited, it’s likely not actual financial planning.
For example, if a financial planner doesn’t look at stocks, bonds, tax rates or savings, this limited scope makes them something other than a financial planner. Working in such a capacity categorizes them as a retirement plan specialist or an insurance product specialist.
In this article, InvestmentNews provides some tips on how to become a good fiduciary planner, should anyone choose this career path.
Anyone can call themselves a financial advisor or planner and give investment advice. But to be formally known as professional financial planners, they need to get specific certifications. It’s also necessary to obtain the appropriate training or registration, depending on the type of fiduciary planner they want to become.
Those pursuing a career in financial planning must have the prerequisite education, take the appropriate exams, gain relevant experience, and meet certain ethics requirements.
In standard practice, fiduciary planners or advisers must always act in their clients’ best interest, even up to the point where their clients’ needs are placed above their own. They can and must suggest financial strategies that benefit their clients and their specific financial circumstances.
Before deciding on what sort of fiduciary planner or adviser career you want to pursue, it helps to know the different types and their characteristics.
A certified fiduciary planner or CFP is ethically and legally bound to act on behalf of and in keeping with the best interests of their clients. CFPs are held accountable and strictly adhere to fiduciary standards when doing financial planning or providing other financial services.
Their fiduciary standard involves a duty of care, a duty of loyalty, and a duty to follow their client’s instructions.
Being a CFP does not automatically confer fiduciary status. A CFP who does not engage in financial planning is not mandated to act as a fiduciary. However, once they provide financial planning services, they must take on the duties of a fiduciary.
This applies regardless of whether they’re giving tax advice, retirement planning, or investment advice. All these services should be provided with the client’s best interests in mind.
Compared to CFPs, RIAs are always fiduciaries. This is in strict adherence to the Investment Advisers Act of 1940, which was penned by the U.S. Securities and Exchange Commission.
The act states that advisers should be clear and transparent with clients about:
While the Act does not explicitly name RIAs as fiduciaries, the U.S. Supreme Court did rule that RIAs work as fiduciaries for their clients.
The act does not expressly prohibit advisers from engaging in acts that may constitute conflicts of interest. The act only requires that advisers use Form ADV to disclose them to the SEC.
As with all types of advisers, RIAs should not manipulate, deceive, or defraud their clients.
This type of fiduciary adviser is what its name suggests. They are fiduciaries that only receive compensation in the form of fees directly paid to them by their clients. They don’t receive any sales-related compensation (like commissions) from their employer or 3rd parties such as fund companies or investment firms.
The fee that they charge may be a flat rate, an hourly fee or a percentage of assets under management (AUM). Not every fee-only financial advisor is a fiduciary, nor are all fiduciaries fee-only advisors.
Fiduciaries have the option to be “fee-based”. This means that the advisor can get a commission on some financial products, apart from charging fees for their financial advice. This is a hybrid approach and is common among broker-dealers who are not fiduciaries.
In case a fiduciary also receives commissions, they are obliged to disclose and manage any conflicts of interest that may arise, such that they still adhere to any fiduciary obligations to their clients.
Also sometimes called a Department of Labor fiduciary, this type of advisor provides investment advice to retirement investors, usually to 401(k) plan participants or even individual IRA or other retirement account owners.
The DOL fiduciary has a special set of rules that applies to advisors providing retirement advice. Whenever the advice involves a retirement account, the Department of Labor requires that the advisor act as a fiduciary. For non-retirement accounts, however, the DOL is no longer concerned about whether the advisor follows DOL fiduciary rules or not.
When advising under the DOL fiduciary rules, advisors must stick to their fiduciary duty and uphold these standards. There must be no conflict of interest regarding the pay structure, and clients should get the best advice with their best interests at heart.
This is a fiduciary that is not necessarily registered with the SEC or the Department of Labor. Fiduciaries of this sort pledged to adhere to the fiduciary standard and took a fiduciary oath voluntarily, usually as part of a professional certification or designation.
Advisors may pledge to be fiduciaries with organizations like the National Association of Personal Financial Advisors. The NAPFA mandates members to take a fiduciary oath and agree to compensation via the fee-only model.
Most professional standards like this do not have the force of law; their rules are enforced only by the organization that created the designation. These are often obligations associated only with the right to use the professional mark of the designation.
The voluntary fiduciary rules typically apply only to the conduct of the individual who holds the designation, and not the professional's employer or appointing organization.
The contrasting duties expected of a non-fiduciary financial planner versus a fiduciary planner are important to know, as they outline further the responsibilities involved in the profession.
In the suitability standard, financial planners, brokers, and investment planners are only required to recommend investments that are suitable for the client (but suitability standards could be changing). Their recommendations are made regardless of whether these wealth advisors earn a commission or not. This means the potential for a conflict of interest is always present.
As for fiduciary duty, the fiduciary planner is held to a higher standard. They can only recommend investments or investment strategies that benefit their client, placing the client’s interests above their own.
This video further discusses the differences between the suitability standard of typical financial planners as compared to the fiduciary duties of fiduciary planners.
Fiduciaries have two main responsibilities or duties to their clients under the Investment Advisers Act of 1940, issued by the Securities and Exchange Commission (SEC).
These duties are also required by other specific laws such as the Code of Federal Regulations (CFR). Fiduciaries can be held legally accountable if they fail to carry out these duties.
A fiduciary planner gets compensated based on their relationship with their clients. That’s because specific types of financial advisors like certified financial planners and Registered Investment Advisors (RIAs) are bound by certain rules. Here are some of the ways a fiduciary planner can get paid:
Some fiduciary planners can simply charge their clients a set amount or a flat fee. Depending on factors like the scope and difficulty of the work, as well as the planner’s level of skill and experience, they may charge a flat fee ranging from $2,000 to $7,500 a year.
Some fiduciary advisers prefer to charge based on a percentage of the client’s total assets. Fees can vary depending on:
Here’s a table showing a few examples of how investment firms and fiduciary planners may charge fees for their services:
| Type of Fee | Sample Cost |
| Assets Under Management (AUM) | 1% of the assets yearly for a personal financial advisor |
| Hourly Fee | $200 to $400 |
| Retainer or Flat Annual Fee | $2,000 to $7,500 |
| Fee on a per-plan basis | $1,000 to $3,000 |
A fiduciary planner with fiduciary duties can only charge as a fee-only advisor. They cannot earn any commissions from investments to fulfill the duty of loyalty, thus avoiding any conflicts of interest.
It is possible to perform more than one service and charge more than one fee type. For instance, an advisor may charge an AUM fee while also charging a flat fee for estate planning or financial planning.
There may be some confusion as to fee-based and fee-only planners of this type. While both terms sound similar, they are markedly different.
Fiduciary financial planners who rely on the fee-based model can also offer mutual funds or other investments that offer commissions. If the planner offers investments that can earn them commissions, this is a clear conflict of interest.
As a fiduciary planner, it’s probably best to charge as a fee-only adviser to avoid any conflicts of interest. In this setup, the fiduciary planner is prohibited from selling investments or financial products; they cannot accept commissions.
A fee-only adviser works exclusively in the interests of their clients. They are paid in one of these ways:
This compensation structure would often apply to a Registered Investment Advisor or RIA. What makes this type of financial planner special is that they’re legally obligated to act as fiduciaries.
An RIA is also registered with the Securities and Exchange Commission. The federal government can monitor their activities, providing more protection to investors. Before engaging clients, an RIA must inform them of how they earn their compensation. They usually earn about 1 to 2% of AUM. As of now, there are a little over 15,000 of these specialized financial planners.
Deciding on which type of fiduciary planning career to pursue is not a simple decision, since the profession involves taking on a lot of responsibility. Your business activities could be monitored by complex laws. There may be difficulty in obtaining the necessary qualifications. You must also agree to work for the best interests of your clients, and not for personal gain nor for the benefit of third parties.
The net positives of this career path are the potential for significant earnings while conducting business ethically. Given the advantages and disadvantages of this job, the decision rests on you whether a fiduciary financial planner is a good fit.
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