I believe a financial advisor should be someone who will help you manage all your finances and not just your investments. They should act more as a financial caregiver and not the quote-unquote financial advisor that our society has come to know.
Fiduciary advisors could get paid just to manage your investments, but they believe helping you become your best self is the ultimate goal. Fiduciaries believe their true value lies in the advice given about your entire financial life and behavioral actions around investments. Here are six ways they benefit clients beyond investments.
1. Holistic Approach to Financial Advising
Fiduciaries look at your complete financial life. And your complete financial life includes cash flow, budgeting, how you view money and treat it, along with estate planning and insurance. They help you figure out your goals and understand them at the intrinsic level. Many people don’t know what their goals are or they don’t know how to bring them to life.
Behavioral advice may be the hardest to explain but is also the most important factor. A fiduciary's goal is to understand you at your core, your personality and what you value. Your money and your values are closely related and they want to make sure they are aligned with each other.
3. Fiduciaries Don’t Compete
Fiduciaries don’t compete against benchmarks. The DOW and S&P 500 are not invested according to your plan, they are a view of how a certain number of companies are doing. Fiduciaries care about how your investments are doing in comparison to your life goals, not whether or not they are outperforming the Dow.
4. No Commissions
Fiduciaries don’t operate on commissions. They are either paid through retainers or assets under management. They want what is best for you, not what insurance or investment product will pay them the largest commission. (For related reading, see: Paying Your Investment Advisor - Fees or Commissions?)
Your financial life is private for good reason. It is hard to share our mistakes as well as our successes sometimes with a stranger. Fiduciaries work hard to create a relationship built on trust. That is why they work so hard to understand you on a behavioral level, because numbers don’t tell the whole story.
6. Customized Financial Plan
Everyone’s financial life is different. We may have similar goals but different paths to get there and so fiduciaries create plans that are customized to each client. Every decision needs to be taken with intention and authenticity.
These are six benefits you will most likely not receive from someone who works for a large financial institution that offers their own products. So the next time you hear someone say "I am a financial advisor," ask if they are fiduciary only. There are many advisors around who can still say they are fiduciary in one aspect but are also associated with a broker that allows them to sell products on commission. As a pure fiduciary, they will advise your life and your situation, not just a product.
(For more from this author, see: 5 Ways to Improve Your Finances Throughout Life.)