Adhering to a fiduciary duty is both a responsibility and a distinguishing feature among financial advisors. The path to becoming a fiduciary financial advisor is similar to that of a financial advisor, but it involves passing a specific examination like the Series 65 exam or meeting one of the exemptions. This distinction sets you apart from other financial advisors, and signals to potential clients that you adhere to the highest legal and ethical standards.
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How a Fiduciary Advisor Differs From Other Financial Advisors
At its core, a fiduciary duty is a legal and ethical obligation that requires an advisor to act in the best interest of their clients. This duty is the highest standard of care in the financial industry, surpassing even the suitability standard that many other advisors follow.
Under the suitability standard, advisors are only required to recommend products that are appropriate for their clients. It doesn’t take into account whether those products are not the best possible options.
In contrast, fiduciary advisors must ensure that their recommendations are optimal for their clients’ specific financial situation, goals and risk tolerance.
Fiduciary advisors are also held accountable for their actions. Should a dispute arise, clients have legal recourse to address grievances, providing an additional layer of security and peace of mind.
How to Become a Fiduciary Advisor
To become a fiduciary advisor, you simply need to be registered as an investment advisor representative (IAR) in accordance with Investment Advisers Act of 1940. This typically means passing the Series 65 exam or meeting a state-specific exemption from the test, and then registering with a registered investment advisor (RIA), which is the legal entity that provides advisory services for clients. Below are additional things you can consider broken into four categories, but they are not hard requirements:
Education and Certification
- Obtain a bachelor’s degree: Most financial advisors start with pursuing a bachelor’s degree in a relevant field such as finance, accounting, economics, or business administration. These programs provide a solid foundation in financial principles, investment strategies and economic theory.
- Consider advanced education: While not required, obtaining a master’s degree or MBA with a focus on finance or financial planning can enhance your knowledge and make you stand out from other financial advisors. Advanced courses in financial planning, personal finance management and wealth management can be particularly beneficial.
- Consider specialized certifications: Consider enrolling in programs specifically designed for financial advisors, such as the Certified Financial Planner™ (CFP®) certification. The CFP® curriculum covers important areas like investment planning, tax planning, retirement and trust planning, and risk management, all of which are essential for fiduciary advisors.
Professional Experience
- Hands-on experience: While education and certification in becoming a fiduciary advisor is crucial, it’s no substitute for hands-on experience. Mentors and peers can also provide valuable guidance and insight into client management, financial analysis, and the day-to-day responsibilities that come with being a fiduciary advisor. Professional experience can also provide access to industry conferences, seminars and workshops that can help you stay up to date on industry trends and best practices.
- State requirements: In order to become a fiduciary, most states require a certain amount of professional experience. For example, your state might require you to have a degree and five years of professional experience, or 10 years without a degree. You’ll want to confirm your state’s requirements to meet the criteria.
Registration and Licensing
- Certified financial fiduciary (CFF): In addition to any licensing you’re required to hold as a financial advisor (such as the Series 3, Series 6, Series 7, Series 63 or Series 65 licenses), you may want to you to obtain a fiduciary license, or the certified financial fiduciary (CFF) designation. In general, to become a CFF, you’ll need to hold a bachelor’s or master’s degree in a relevant field, have several years of professional experience, pass a background check, pass the CFF exam, and register with the National Association of Certified Financial Fiduciaries (NACFF).
- Adhere to fiduciary standards: Once registered as a fiduciary advisor, you must adhere to fiduciary standards. This means always acting in the best interests of your clients, providing full disclosure of any potential conflicts of interest, and showing transparency in all financial dealings.
Continuing Education and Professional Development
- Stay current with industry changes: As a fiduciary advisor, it’s important to stay informed about changes in laws, regulations and best practices. One way to do this is by participating in continuing education programs. Many certifications, including the CFP®, require ongoing education to maintain your credentials.
- Join professional organizations: Consider joining professional organizations such as the Financial Planning Association (FPA) or the National Association of Personal Financial Advisors (NAPFA). These organizations provide resources, networking opportunities and continuing education to support your career development.
Bottom Line
For advisors, operating under a fiduciary duty is both a responsibility and a distinguishing feature. It sets them apart in a crowded marketplace, and can help attract clients who value integrity, as well as foster long-term relationships with those clients built on confidence and trust. While becoming a fiduciary advisor requires much of the same criteria as a financial advisor, key licensing and registration requirements, as well as the adherence to a fiduciary duty, sets this career pathway apart.
Tips for Becoming a Fiduciary Advisor
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- The fiduciary standard does not apply to all financial professionals. Commission-based practices, such as brokerages, need special licenses to sell securities and other products. In these cases, the suitability standard applies.
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