My Financial Advisor Isn’t a Fiduciary. Should I Switch Advisors?

Choosing the right financial advisor is a challenge.

Typically, a good financial advisor charges around 1% of your total portfolio each year. In return, you get financial planning that goes well beyond investing advice.

You want a fee-only fiduciary. That means that not only is the person legally required to act in your best interests, the person cannot make a commission by steering you toward certain financial products.

But many financial advisors can present themselves as fiduciaries even if they’re “fee-based” instead of “fee-only.” Or even if they aren’t fiduciaries at all via some back-door engineering.

What happens if you realize your financial advisor isn’t a fiduciary? Should you switch advisors?

That’s what a listener of the Clark Howard Podcast recently asked.

Should I Switch Financial Advisors If My Advisor Isn’t a Fiduciary?

I just realized my financial advisor isn’t a fiduciary. Should I switch advisors?

That’s what a Clark listener asked on the June 12 podcast episode.

Asked Chuck in New York: “Clark, I have a Wells Fargo financial advisor who manages over $1 million dollars for me.

“After listening to your podcast and you telling us that a fiduciary can’t sell commissioned insurance products, I asked my advisor if he sold commissioned insurance products. He said yes but I don’t own any. Should I be concerned enough to change advisors?”

Unfortunately, Chuck is far from alone. There’s a recent pattern of financial advisors calling themselves fiduciaries while obfuscating their true nature.

You don’t want an advisor incentivized to sell you something you don’t need for their own personal gain via extra commissions and fees.

If you haven’t hired the individual yet, avoid them. But if you’re like Chuck and you’re already doing business with them, you have a tough personal decision to make: proceed with one eye open and be prepared to reject certain advice or switch financial advisors.

“I urge you to be very cautious and careful. You seem to really trust this individual. But be wary if they start pitching a particular high-cost investment or a commission-oriented investment to you,” Clark says.

“The bank-based brokerages tend to sell ultra high-cost investments vs. one of my favorite children: Fidelity, Vanguard or Schwab.”

How Are Financial Advisors Posing As Fiduciaries?

In the past, Clark has provided a list of questions to ask any potential financial advisor. One of those questions: Are you a fiduciary?

Unfortunately, that question may not be worth your time any longer. Because almost every financial advisor will say yes regardless of reality.

A better question to ask may be: Do you get a commission for any financial products you sell, be it investing, insurance or anything else?

“Especially bank-based financial services are having their people wear two hats,” Clark says. “We’ve even seen it occasionally with a non-bank-affiliated financial firm.

“They claim that they’re a fiduciary. But the firm has you sign two agreements.

“So the individual is wearing two hats. They’re wearing one where they’re supposedly a fiduciary only doing what’s in your best interests. But then they decide, ‘Oh, now I’m putting on my other hat. Now I’m going to sell you garbage with giant commissions.’ And then they’re not a fiduciary.

Final Thoughts

Doing your homework to understand what a fee-only fiduciary is and how to identify one can be frustrating and disheartening. But it’s worth the time and angst to see it through.

A good financial advisor can be a boon to you, your family and your business for generations to come. But when it comes to your hard-earned wealth, the stakes are high.

The end result you want is to avoid paying high fees for investments and commissions for products that you don’t need.