Studies conducted by the U.S. government estimate that a full 1% of annual investment returns are lost each year for one simple reason…and it’s an easy mistake to make.

That’s 1% of all investments in the U.S. by the way, or about $17 Billion dollars.

Every single year.

That’s a pretty big number, and it’s all because many investors are seeking out non-fiduciary advice.

Now, if you don’t know what the term “fiduciary” means, it’s easy to underestimate its importance. Especially because non-fiduciary advisors sometimes charge lower up-front fees and can therefore seem more attractive to those who haven’t done the proper research.

Unfortunately, in the long run it’s just not worth it. Especially when you’re dealing with long term investments or retirement planning, non-fiduciary advice could mean you’re just throwing away cash every single year, significantly crippling your long-term growth potential.

This is why, as an individual investor, it’s important you understand money management terminology as much as possible. There’s a lot of options when it comes to selecting a financial advisor, and it’s definitely an area you don’t want to skimp on.

That’s why, today, we’re going to delve into the term “fiduciary” and define what it means, why it’s so important, and how you can ensure you’re getting fiduciary advice when it comes to managing your accounts.

What Exactly IS a Fiduciary?

Technically, fiduciaries must be either Registered Investment Advisors (RIAs) or Investment Advisor Representatives (IARs). They are the only money management professionals who can charge fees for advice and ongoing services.

Most importantly, all fiduciaries have a legal responsibility to act in their client’s best interest. In fact, they’re even legally obligated to put the client’s financial interest above their own.

It probably seems like this should be a given. As more and more Americans become aware of the importance of hiring a fiduciary, it is becoming more commonplace…but don’t forget that huge $17 billion price-tag still attached to non-fiduciary advice.

Non-fiduciary advisors are simply required to make suggestions to clients that can be deemed “suitable”. Unfortunately, the definition of “suitable” is pretty broad and can vary from one advisor to the next.

While non-fiduciary advisors aren’t allowed to just throw your money away, there’s no legal obligation for them to offer you the cheapest or best options for your accounts. A lot of this $17 billion loss is coming from clients who are talked into purchasing overpriced insurances or services. Non-fiduciary advisors often earn commissions from sales and can be quite skilled at the whole “salesmen talk” gambit.

You know that trope of slimy used car salesmen who talk buyers into purchasing a host of extra options they don’t really want? We’re basically talking about the exact same thing here, just in the money management world.

Now, that’s not to say that all non-fiduciary advisors are crooks and thieves. However, there’s something important you should consider here…

If you discover that your financial advisor isn’t acting in your best interest, wouldn’t you want to be entitled to some legal action?

If your advisor isn’t a fiduciary, you’re pretty much left on your own here. As long as they can prove their recommendations are “suitable”, you won’t see a dime in compensation. Even if your accounts take a serious hit as a result of their actions.

On the other hand, if you hire a fiduciary advisor, there’s a legal precedent already in place. If it turns out they’re accepting commissions for selling overpriced insurances, you’ll be entitled to financial compensation.

Plus, fiduciaries are held to the highest standards in the industry, so simply finding one with a few years experience should mean you don’t have anything to worry about in the first place.

How Do I Find a Fiduciary?

There’s a few simple ways to go about locating a fiduciary. Once you find one, it’s important you ask them some questions to make sure they’re right for you. We’ve covered this topic in the past, you can click here to find out the questions you should be asking.

First, you can use the Security and Exchange Commission’s investment adviser public disclosure search tool, located here.

You can plug in your zip code to look up the filings of advisors in your area. RIAs (which are all fiduciaries) will have a Form ADV Part 2A filing available to view.

One thing to note here is that some advisors are dual registered, and also act as brokers. This isn’t necessarily a bad thing, but it is something you should be aware of, as it could create a conflict of interest. If this is the case they will be required to disclose this information to you if you ask.

Secondly, you can use the National Association of Personal Financial Advisors’ (NAPFA) search tool located on their site. All advisors registered with NAPFA are required to be true fiduciaries and will not be dual registered.

You’re also welcome to schedule a call with a member of the Rowe Wealth Management team. We can always help you locate the best advisor for your individual needs, and we even have in house fiduciary advisors with decades of experience in the industry, if that’s something you may be interested in.

As always, a scheduled call carries no commitment, you’re more than welcome to simply call in with a few questions.

Click here to see available appointment times.