Why Request a Fiduciary Oath?

Getting a commitment in writing demonstrates the gravity of an agreement or situation. When you get married, you sign a marriage license. When you buy a house, you sign a purchase agreement. When you download a new version of a Mac operating system, you agree to the written terms and conditions. Written agreements are commonplace, so it would be straightforward to ask your financial advisor, or potential financial advisor, to sign a written statement of fiduciary responsibilities―also known as a fiduciary oath.

A fiduciary oath is a statement signed by a fiduciary that outlines the fiduciary’s duties and responsibilities in writing. Groups such as The Committee for the Fiduciary Standard, founded in 2009 after several infamous financial crises, have emphasized the importance of signing an oath to clarify the relationship between the fiduciary advisor and the client. This document can help clients determine if a financial advisor is acting as a fiduciary.

Why Seek a Fiduciary?

A professional fiduciary is held to a higher standard of customer care than a broker, insurance salesperson, or bank representative. Fiduciaries are legally obligated to put their client’s best interests first and adhere to a fiduciary standard of care.  Brokers or other product salespeople are only held to a “suitability” standard. The suitability standard does not prevent profit-seeking activities, and invisible costs can pile up. Retirement plan expert Scott Simon eloquently explains in his article, "Why I’m a Fiduciary."[1]

Brokers, bankers, and other professionals who deal with product sales can call themselves whatever they wish, confusing the public. They may use titles like wealth manager, financial advisor, money manager, or something similar. Titles generally are not regulated.

Define Your Objectives to Choose the Right Financial Advisor

In the late ‘90s, my wife and I began hunting for a new house. We loved our little home near the south end of Lake Harriet in Minneapolis, but it was quickly becoming too cramped for our family of five. There was always a toy underfoot, and it constantly felt like we were tripping over each other.

At the time, the housing market was very tight. There wasn’t much on the market, and houses tended to be snapped up quickly. Because of housing market conditions, we kept our criteria minimal, only telling our realtor that we wanted a place near Lake Harriet. That’s it.

I’m sure I toured at least 30 houses over several weeks. Every time we stepped through the door of a new place, my wife and I felt hopeful, but our optimism was usually quashed immediately. Nothing was quite right—too small, too big, too run-down, insufficient space in the kitchen or living room, not enough bedrooms, a cramped yard, a busy street. We were striking out left and right.

Then, we decided to take a different approach. Instead of being loose with our criteria, I made a spreadsheet that detailed exactly what we wanted—our needs, wants, and “nice to haves.” My wife and I put a lot of thought into our chart, making sure to list all the factors that were important to us. We knew we needed five bedrooms, two bathrooms, a house in good repair, and someplace located close to Lake Harriet. In the “wants” column, we listed items such as a garage and a big yard because they were not absolute necessities for us. In the “nice to have” column, we listed features such as a swimming pool and a sauna.

After defining our list, we brought it to our realtor. I worried he might think we were seeking a unicorn, but instead, he surprised us by saying, “I think I have the perfect house for you. It’s not yet on the market, but I think I can convince the owner to let you take a look.”

Once we had permission to tour the house, my wife and I visited it. As soon as we stepped through the door, we knew it was the one. It ticked all the boxes on our “needs” list, fit most of the criteria on the “wants” list, and had a few of the “nice to haves.” It even had a sauna! We’ve lived in that house for 25 years. It’s where our three kids grew up, where we hosted friends and family, worked, relaxed, and made memories.

I learned through this experience that dialing in your needs, wants, and nice-to-haves when making a significant decision is incredibly valuable. This applies to buying a house or car, choosing a new doctor, or—and maybe you saw this coming—choosing a financial advisor. 

Should You Hire A Financial Advisor or DIY?

A grinding screech rings in your ears as you come to the stop sign. You know your brake pads are worn out. Should you try to fix your brake pads yourself (DIY)? Or should you take your car to a mechanic and hire someone else to fix the brakes?

If you are not a mechanic and don’t know very much about changing brake pads, it might make sense to hire someone. Sure, you could spend time researching how to change brake pads online, order the parts, and even try to do it yourself. But what if you misunderstand the directions or make a mistake? What if the brakes don’t engage, and you get in a car crash? Would you be willing to take this risk? Most people who aren’t trained mechanics would probably choose to hire a professional to install new brake pads rather than try to do it themselves.

The brake pad situation is like financial planning. Developing and executing your own financial plan is possible, but is it wise? In the same way, your car may end up in a wreck if you change your own brake pads, so too could your financial future be thwarted―even derailed if you choose an inappropriate investment strategy or fail to take necessary details into account. 

In my years of experience, I have found that most people lack the skills and knowledge to develop their own financial plans. This is why people seek a financial planner for guidance and why financial planning is a profession.

Why Hire a Professional Financial Advisor

You must be trained with a particular skill set to trust yourself to perform heart surgery or design a skyscraper. Specialized skills take years of training, practical experience, and perspective. Experienced financial planners also require long-term training and skills development.

Professional financial planners undergo extensive training, continued education, frequent testing, and practical experience. Reading a Dave Ramsey book or watching videos will not provide enough information to become an expert. Comprehensive financial planning often involves complicated calculations and understanding legal requirements and regulations―especially when it comes to taxes and tax efficiency. Financial planning also requires a disciplined approach. You can't learn these skills in a day; they take years to build.

The Benefits of Comprehensive Financial Advice

When you are looking to buy a suit or a dress for a special event, you will encounter many options. You will likely whittle down your choices by asking yourself some questions. Is the event formal, semi-formal, or casual? Is there a particular theme? Are bright colors appropriate? Will the weather be a factor in your decision? And once you've purchased your suit or dress, you may have to go to a tailor to have it properly fitted. They will rework the fabric to fit your specific measurements.

This same kind of care and attention goes into delivering comprehensive financial advice. A one-size-fits-all financial strategy for everyone does not exist. People are complicated, with different circumstances, goals, aspirations, financial situations, etc. A business owner might also be a parent, an avid mountain climber, and a marathon racer. That same person might have inherited a large sum of money or have a modest nest egg and a good deal of debt.

Since everyone has a unique financial story, financial advisors must consider as much relevant financial information as possible when offering advice. For advice to be truly comprehensive, the advisor must consider many different paths their client could take to achieve a successful financial future. A comprehensive financial plan consists of not only general financial planning but may include investment planning, banking, insurance, and estate planning, depending on the advisor's expertise. The financial advisor could facilitate some of these areas, or they could recommend trusted experts.

Why is Comprehensive Financial Advice Important

Why is it important for financial advice to be comprehensive? At its core, comprehensive financial planning is about goal achievement. We all have different monetary-related goals, and a holistic financial strategy can help us obtain those goals. A comprehensive financial approach gives investors a direction—a path to follow when making decisions.

Comprehensive financial advice takes the investor's "big picture" into account. A person's big picture could include kids in college, a new home, plans to retire in Florida, or lingering credit card debt. Holistic advice aligns financial planning with a comprehensive investment strategy. As a long-time financial advisor, I believe comprehensive advice is foundational to smart investing. But how does this happen from a logistical standpoint? How do financial advisors organize the information they need to build a logical, customized plan for their clients?