The Marks of a Great Fiduciary Financial Advisor
By Ariel Bollant, Senior Client Service Manager
In the investment advisory and financial planning business, there’s no shortage of options to choose from in managing your wealth. One size doesn’t fit all, and variety is the spice of life—isn’t it? Well, I’m not so convinced when I’m standing in the ice cream aisle with 370 flavors staring me straight in the face. But choosing an investment advisor is nothing like choosing ice cream. Where do you even start? Fee-based, fee-only, commission-based? And how does being a fiduciary intersect with these?
There’s also no shortage of lions and jackals in life, so knowing a thing or two about the wild—where to go, who to work with—can mean the difference between relishing a safari and getting lost in Jumanji. This blog aims to discuss the benefits of working with a fee-only fiduciary, as opposed to those who use commission or fee-based payment structures.
What is a fiduciary financial advisor?
A good place to start is by defining what is meant by the term “fiduciary,” as it relates to investment advisors. A fiduciary is legally obligated to act in the best interest of their clients, and to put their clients’ interests ahead of their own. This means that the fiduciary advisor must always act in good faith, seek to eliminate or provide full disclosure of any potential conflicts of interest, and provide advice that, based on the client’s goals and objectives, is in the client’s best interest. A fiduciary advisor must also exercise a high level of care, skill, and diligence in providing financial advice and managing their clients’ wealth. For more on this, you can check out our article Fiduciary: is it a Common Practice? | Halbert Hargrove
Next, we turn our attention to fees. It does seem like few things in this life worth getting are truly free. Something of value costs something of value. This begs the question: If my bank tells me I’m getting my checking account for free, is it because it has no value, or that “free” may not mean what I think it means? There is not necessarily anything nefarious about this operation—the bank is providing a service to me with a degree of excellence that my mattress cannot compete with.
There are a few basic ways that investment advisors and financial planners have generally decided to get paid. The basic models can apply to any professional, but in the jargon of the finance world you will commonly find commission-based, fee-based, and fee-only. Here’s the basics:
Types of fiduciary financial advisors
Commission-based financial advisors get paid in the same way your car salesman generally does, through sales activity. This activity can take many forms: selling products, opening accounts, or buy and sell activity within an account. For example, a mutual fund may have a sales charge, or sales load, that an investor pays in addition to the purchase price of the investment product. This sales charge is paid to the advisor who sold the investment.
Fee-only financial advisors only receive compensation in the form of the fees paid to the advisor by their clients.
The fee-based model is something of a peanut butter and jelly sandwich of the other two—they can do both.
There’s nothing inherently dishonorable about any of the three structures. Each is intentionally structured with specific goals in mind. Halbert Hargrove has intentionally made the decision to operate as a fee-only advisor, and I will focus on the reasons for that.
The benefits of working with a fee-only financial advisor
A fee-only fiduciary financial advisor is compensated solely by the fees paid directly by their clients and does not receive any commissions or other forms of compensation from third-party vendors or financial institutions. This means that the advisor is not influenced by potential commissions or kickbacks from financial companies when recommending certain investments, products, or services. The fee-only fiduciary advisor is accountable only to their clients and must always act in their best interest.
One of the primary benefits of working with a fee-only fiduciary advisor is knowing that the advice they provide is not influenced by commissions or other compensation and aligned with the client’s interests. Advisors who receive commissions or other forms of compensation from vendors and business partners have a clear conflict of interest between their own payment and the investments they make on their clients’ behalf. Because fee-only advisors receive no other commissions, their recommendations of certain investments, products, or services are not influenced by potential payments from financial companies. They are transparent about their fee structure—typically based on a percentage of assets under management.
This means that clients know exactly what they are paying for, and there are no hidden fees or commissions included in the advisor’s compensation. After all, nothing of value is really free. This level of fee transparency can help investors make more informed decisions about their wealth management and ensure that they are getting the best possible value for their money.
Being a fee-only fiduciary helps us at Halbert Hargrove take a comprehensive approach to wealth management. We take a holistic approach in planning for our clients—which includes investment management, financial planning, retirement planning, estate plan reviews, tax planning, and risk management. I believe we are excellent at what we do and transparent about the services we don’t perform. For example, while we are not estate planning attorneys, we work with and are happy to recommend legal professionals to our clients. And while we don’t file our clients’ tax returns, we use powerful tools to analyze complex situations and help them create plans in an effort to take advantage of potential tax savings.
I’m unapologetically proud to work for one of CNBC’s top-rated firms in the country (see below for ranking details)*, and I am proud of the difficult choices we’ve made to choose the fee structure we use. I believe that it is one of the key factors that empowers us to provide advice solely focused on our clients’ best interests.
*CNBC ranked HH as one of the Top-Rated Financial Advisory Firms from 2019-2022. The ranking was last received October 2022 based on 12/31/2022 data. CNBC enlisted data provider AccuPoint Solutions to assist with ranking. The rating is not indicative of Halbert Hargrove Global Advisors future performance, nor should it be construed as a recommendation or endorsement by CNBC. Halbert Hargrove Global Advisors did not pay a fee to participate in the survey. For additional information about the most recent raking please visit: FA 100: CNBC ranks the top-rated financial advisory firms of 2022.
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.