Bruce Helmer and Peg Webb

Recently updated research from Vanguard confirms that working with an adviser can potentially add, or even exceed, 3% in annual net returns, than not working with an adviser.

Yet only 35% of Americans say they work with an adviser. Why don’t more people want to hire a financial adviser?

One of the reasons could be distrust in financial institutions, including banks. But we think another reason is that many people are unclear about what defines one financial adviser from another. For example, a “registered representative” must now adhere to the standard of working in a client’s best interest (Under Regulation BI, 2019), while a Registered Investment Advisor (RIA), long the gold standard for firms providing investment advice, must attest to putting their client’s interests above all others, including their own.

It’s a subtle distinction, but one that’s important to understand. To determine which standard applies in your case, ask your current adviser: “Are you allowed to consider any other factors besides my best interest when making investment recommendations?” If they answer “yes,” it could be time to make a change. If your adviser must be legally required to act in your best interest 100% of the time, you may want to consider working with an independently owned RIA firm.

In addition, pay attention to how the adviser is paid. While a registered representative and RIA are both generally bound to work in your best interest, the way they are compensated will tell you a lot about where their monetary allegiances may lie.

How fiduciary advisers add value

Fiduciary advisers have the training and experience to help put your financial situation on solid footing. It’s not always about maximizing investment returns. According to Vanguard, the greatest potential value-add that an adviser offers is in the area of behavioral coaching, spending strategies (that is, how, where, and when you take withdrawals), and asset location. We have found that advisers have the greatest impact in the following financial planning areas:

• Budget discipline: A good adviser will help you construct a manageable budget, let you know when your spending exceeds your means, and advise you when you need to dial it back. Holding you accountable to your vision of the life you want is a major benefit of working with an adviser. You probably shouldn’t even be investing until you’re sticking to a monthly budget and managing debt.

• Investment opportunity: Larger advisory firms may be able to offer you investment options at a lower cost than you might get on your own, as well as access to highly rated, difficult-to-access managers. (Of course, access to managers and savings cannot be guaranteed).

• Asset allocation strategy: An adviser’s fee should include creating an asset allocation strategy tailored to your individual goals and risk tolerance. You receive value when the adviser monitors your account and manages any future adjustments to keep that allocation strategy on target — either quarterly or annually.

• Retirement planning: Many investors don’t understand the different ways that various retirement-focused accounts can be used in income planning: 401(k)/403(b), traditional IRA, Roth IRA, income ladders, annuities, or taxable accounts. When an adviser helps you diversify your tax exposure, you may be better positioned to make your money last longer in retirement.

• Asset protection strategies: Once you have accumulated financial and other types of assets, you need to protect them from loss. An adviser can help you purchase various types of insurance, including property and casualty (P&C), life, liability/umbrella, and special policies or riders to cover valuable art or collectibles.

• Comprehensive tax planning: Many investors don’t understand the different tax treatments that apply to 401(k), traditional or Roth IRAs, or taxable accounts. A competent adviser can help you decide at what age to take Social Security benefits, how to satisfy new, complicated rules around required minimum distributions (RMDs), or make effective use of tax-loss harvesting.

• Estate and gift planning: A full-service advisory firm should be able to quarterback the creation of your legacy planning and gifting strategy — with input from your attorney and tax professional. This includes the creation of trusts to pass your wealth efficiently to future generations or to distribute gifts of cash or securities to your loved ones or favorite causes in a tax-smart way.

How to choose a fiduciary adviser

If you’ve decided that working with a fiduciary could be helpful, it makes sense to interview at least two candidates before you make the hiring decision. If you know a trusted friend or family member who uses one and has had a good experience, ask for a referral. As part of your research, you should evaluate each candidate using the following criteria:

• Can you have a conversation with this person? Do they listen to you? Did they seem to care about you?

• What is the adviser’s experience and expertise? Have they been through at least one recession? Do they focus on one specialty, such as retirement planning, or are they more of a generalist?

• What are their training and credentials? Are they a Certified Financial Planner (CFP), Certified Financial Analyst (CFA), or Certified Public Accountant (CPA)?

It always is a good idea to conduct a background check through the FINRA, SEC, or CFP Board websites.

A great fiduciary advisor should be able to demonstrate their value many times over in several important areas of your financial life.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  

Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on WCCO 830 AM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Securities offered through LPL Financial, member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.