What is a Fiduciary Financial Advisor?

10/20/2022

You might have seen the term Fiduciary Financial Advisor thrown around, but what does that mean? What do you need to know about it if you decide to work with one? Here are some essential things to know and how we can help you. 


Why Have One

As Certified Financial Advisors, we will work with you to create an individualized plan for wealth management, investment, and retirement planning. We are licensed professionals who represent your interests. Having a CFA on your side means having someone provide unbiased advice about every significant decision you make. With our help, you will be able to keep track of all income, spending, investments, and taxes-all while helping to minimize your tax burden. 

When looking for a fiduciary financial advisor to help you handle your day-to-day finances, it's also important to know what makes us qualified. When it comes to investments and tax advice, there are two types of advisors you can work with: fiduciaries and advisors/salesmen. As CFA, we are a type of fiduciary who provide legal protections and standards of care for our clients above all else-meaning that we will never profit from giving bad advice that hurts our clients in any way. However, 98% of expat financial advisors/salesmen aren't bound by these restrictions because they're not held to such high standards as ourselves, CFA professionals. 

As CFA we stand out from other advisors/salesmen, we adhere to three guiding principles: honesty, integrity, and competence. We help you creating personalized strategies for investment, retirement planning, insurance coverage, and more. 

Who Are We and How Much Do We Cost

A Fiduciary Financial Advisor is any individual, firm, or other organization (fiduciary) that meets one of several standards for being fiduciaries, namely: someone who represents you and has discretionary authority over assets held in trust by you; an executor, administrator or trustee. Another requirement to be considered a fiduciary are those who work without commissions, so with no potential conflicts of interest. 

Financial Advisors are commonly paid in two ways: on commissions and performance fee-based. The majority of expat financial advisors/salesmen - 98% - fall into the category of commission-based.

Commission-based advisors/salesmen are highly effective at motivating their clients to invest because they are .... salesmen! So, it would help if you looked for those who do not base their pay on selling products and who are performance fee-based. The problem with commission-based advisors/salesmen is when they have an incentive to recommend specific investments over others because it makes them a lot of money.

Choosing The Right Financial Advisor For You

One of the most important things you can do in your financial life is to get proper guidance. As CFA, we take your needs and goals into account, as well as any potential conflicts of interest, to offer objective recommendations based on what's best for you rather than best for us. You may think that anyone who has an advanced degree in finance or works at a brokerage would qualify as your CFA, but that isn't true. Only Certified Financial Advisors who have met stringent educational, examination, and experience requirements can call themselves CFA.

By choosing a CFA means, you are choosing someone who will look out for your best interests. It also means that we have completed additional hours of continuing education to stay up-to-date on changes to tax laws and investment markets. And being independent allows us to put your needs ahead of those of any brokerage / salesmen you dealing with now. Not to mention, being a CFA prohibits us from recommending products or services based on what's most profitable for us, as a fiduciary financial advisor.

When To Hire A Financial Advisor

Finances are a world of confusion for many expats. How do you separate your wants from your needs? Where should you invest, and how much money do you need to save for retirement if you want to maintain your current lifestyle after leaving your job? What are some investments with reasonable returns with low risk in today's volatile economy? All these questions can overwhelm anyone. Suppose the person who answers your questions has no real vested interest in getting to know you. In that case, they will likely end up being nothing more than another source of frustration on top of everything else that life throws at us.

Before you hire someone to manage your finances, it's important to ask yourself a few questions. Firstly, why do you need an advisor in the first place? Is it because you're doing something wrong and need help correcting it, or are you in over your head and need guidance to ensure that you have all of your bases covered? Next, ask yourself if you can be objective when making decisions regarding your money. If not, then an unbiased source may be best for you. Then some people don't want to be bothered with their finances but want someone there when they want to know about them.

Next, ask yourself if you have time to manage your money. That may be one of the most important questions of all. It's very easy to say that you want someone there helping with your finances, but are you willing to put in the time and effort to get to know them and work with them? An advisor can't do anything for you if they don't know what's going on in your life, which requires work. If you aren't ready or willing to make that commitment, then an advisor isn't right for you.

How Does the Advising Part Work?

Your insurance agent sells you an umbrella policy and earns commissions for every policy sold. Your stockbroker pushes stocks that make him money, not necessarily stocks that are good for your portfolio. A financial advisor/salesman who gets paid by commissions steers you toward products that pay higher commissions, like life insurance policies, even if they're not in your best interest. 

A performance fee-only fiduciary financial advisor, on the other hand, works for you. He's not allowed to sell you any products that aren't in your best interest. And he doesn't collect commissions from insurance companies, stockbrokers, or others who make money if they can convince you to buy a certain product. Instead, performance fee-only advisors are paid by you directly similar to what you would pay a lawyer for services. 

Performance Fee-only advisors provide financial advice for a performance fee and do not sell any products. The performance fee you pay is only paid IF the agreed performance for your portfolio has been met. So, ask yourself: why would you hire a performance fee-only advisor instead of an advisor/salesman who makes money by selling you investments under a very expensive life insurance vehicle and other costly products and providing no real financial advice?

Some Of Our Responsibilities When Working With Clients

As a fiduciary, we have specific responsibilities when working with our clients. These responsibilities can vary depending on the relationship with our clients. The term fiduciary comes from the law, meaning trustee or someone tasked with managing another person's finances in their best interest. As a financial advisor, we might act as a trustee for our clients. However, since there are many types of relationships between people who give investment advice and those who receive it (including performance fee-only advisers, brokerage advisers/salesmen, and insurance agents), there isn't always an expectation that an adviser will take on fiduciary duties.

When you work with a fiduciary financial adviser, we have your best interests in mind. If we don't, you are at risk of not meeting your personal financial goals and objectives. Being partnered with some salesman who has only his interest in mind causes issues like misallocating assets and earning suboptimal commissions on your investments. We have legal protections put into place for you when you hire us to help you invest your hard earned money.

There are two main types of investment advisers: performance fee-only and commissions- based. A performance fee-only adviser does not receive any compensation from commissions or sales, so you can be sure that we won't have an incentive to sell you something because it's in our best interest. Instead, we get our compensation through performance fees charged directly to you. Our services include planning your investments, managing your portfolio, and reviewing your account performance. 

Areas That We Handle

We are legally bound to work for our clients and in their best interest, which protects both parties. The fiduciary concept comes from Latin and refers to being loyal or trustworthy; in legal terms, advisors must not place themselves ahead of their clients. A fiduciary financial advisor might oversee all your day-to-day finances and specializes in the areas of  taxes, investments and estate planning. Most importantly, we act as a buffer between you and any conflicts of interest.

A fiduciary also provides you with financial planning, starting with an initial consultation. We will review your current situation to see what you can realistically achieve in terms of goals like buying a home or retiring early and create recommendations to help you get there. You can ask us about estate planning, taxes, and insurance as well, so we are pretty much up-to-date on anything that affects your assets and help maximize your wealth. We work with different types of assets, including cash accounts, stocks, and mutual funds, so we have expertise in these areas; our value depends on how relevant it is to you personally. A non-fiduciary advisor/salesman may have some knowledge but isn't obliged at all to put you first.

You should be sure to find one who's properly licensed and registered and check their professional background before hiring them. 

Life Insurance Advice From A Certified Financial Advisor

Many expats don't think about buying life insurance until too late. Unfortunately, that means that you have to buy coverage when you're emotional-which can be pretty difficult. That's why we are great advisors: we help you navigate these critical decisions before they become urgent. An excellent place to start is by asking yourself some questions and looking for answers.

But it's important to remember that life insurance policies are complex and full of nuances, so getting an insurance expert on your side can help you get all of these questions answered. And if you don't know where to start, start by making a list of questions: How do life insurance policies work? What types of life insurance are there, and how can they help my family after passing away? How much coverage should I get? We will be able to help you sort through your options and answer any questions that you have.

Once that's done, we will help ensure that all of your bases are covered so that your family won't be left hanging in case something happens to you. It can be challenging to ensure that everyone's financially protected when someone passes away-but it doesn't have to be. Start by asking yourself these key questions and seeing where they lead. Remember: You don't need to go into these discussions alone!

Tax Planning Services

The client relationship with a fiduciary financial advisor isn't just about taxes. The broad definition of financial planning includes more than just tax advice. It also provides:

  • Guidance on life and medical insurance.
  • Wills and estate planning.
  • Retirement planning.
  • Income tax planning.

We can assist you in forming sound plans for your future while providing counsel you can follow through on every step of the way.

The tax governments make it pretty clear that any professional who suggests or recommends tax-related actions to their clients must operate as a fiduciary - meaning they're required to act in their client's best interest at all times. As a result, advisors/salesmen who work for brokerages aren't necessarily allowed to act as fiduciaries because of conflicting interests; advisors/salesmen at these brokerages have incentives to sell products because they earn huge commissions from them. The term fiduciary may sound official and complicated. Still, it simply means that an advisor has an obligation-as well as a legal liability-to be transparent about fees and other compensation. Hence, there aren't any hidden surprises that might come back to bite you.

The potential rewards that come with working with a trustworthy, knowledgeable, and client-focused financial advisor are many, including peace of mind. Once you know what to expect regarding taxes and other related issues, you can stop worrying about them so much-that's some profound relief. 

How we can help

Our job is to help expats make sure they are receiving appropriate services (or establishing relevant investment portfolio's) based on their unique goals and circumstances. So if you need help designing an estate plan that minimizes tax liability while preserving assets for heirs, that's part of our job; if you need investment advice to grow capital safely through retirement, that's part of our job too.

Your job is to run your business, and we are here to help you make sure you have access to all of your relevant documents, statements, and tools at any time in an organized manner so that you can spend less time worrying about financial paperwork and more time running your business.

We specialise in helping expats to plan and invest their wealth and enjoy retirement without the stress of money. Contact us today for a no obligation conversation: hello@expatwealthatwork.com