Here’s the situation: You would like to invest your savings or retirement account. However, not wanting to trust your money to eTrade and luck, you hire an investment advisor who steers your money into mutual funds. Did this advisor gave you good advice? Or does he simply get a commission for each new investor he brings into the fund? This is the question of fiduciary duty, and it is essential to getting good financial advice. The certification of Accredited Investment Fiduciary tries to address this.What Is A Fiduciary Duty?
In 2015 the Barack Obama administration passed a rule through the Department of Labor holding that investment advisors have what is called a “fiduciary duty” to their clients.
In short, fiduciary duty is considered the highest standard of care required by law. Whether you’re an attorney or a financial advisor, it requires you to serve the best interests of your client above all else.
Jobs that require this standard usually require a high degree of specified knowledge. The average person typically won’t be able to understand or refute the advice they’re given by such professionals. These same professionals could also inflict great harm on their clients by acting in their own interests.
These criteria broadly establish the two most common elements of a fiduciary duty: the duty of care and the duty of loyalty.
For example, attorneys owe a fiduciary duty to their clients. Once retained, a lawyer must put the needs of the client first and advise accordingly. A lawyer who ignores that and suggests that her client try a bad case just to run up the bill, for example, could face penalties up to and including disbarment.How Fiduciary Duty Applies
Many professions in business, law and finance come with a fiduciary duty to the client. This is an ethical and, occasionally, legal obligation.
Some banking professionals have a fiduciary duty toward their institution and investors. Before the Obama administration, the financial services industry did not. Nor does the industry have one today. The Obama rule met immediate resistance from Congressional Republicans. The Trump administration ultimately dropped it after a legal challenge.
Financial advisors can freely and legally steer their clients toward investments that bring advisors high commissions. The client’s best interests don’t matter. Therefore, analysts estimate that this practice costs investors between $17 billion to $40 billion per year in excess fees and commissions. It also means that unassuming investors frequently get fleeced. As a result, savvy investors have learned to approach the industry with skepticism.
This is where the Accredited Investment Fiduciary comes in.What Is An Accredited Investment Fiduciary
The Accredited Investment Fiduciary (AIF) is an ethical certification issued by Fi360. That body is sometimes known by its former name, the Center for Fiduciary Studies.
An AIF has completed Fi360’s course on ethical behavior and fiduciary services. The advisors have learned to balance their business interests against a client-first (or fiduciary) approach.
The AIF credential focuses on improving client service. However, it also aims to make professional life safer for financial advisors. For example, part of the course involves best practices and documentation. That can help financial advisors avoid mismanagement claims by having proper documentation and avoiding conflicts of interest.
This is increasingly essential for financial advisors. In the wake of the Obama-era rule, retail investors are sensitive to fiduciary duty and conflicts.Requirements for an Accredited Investment Fiduciary
To receive this certification, a financial advisor must complete either Fi360’s in-person training course or its online web program. The cost of that training ranges from $1,600 to $2,000.
They then must pass a final exam and complete six hours of continued education per year. Also, the advisor must attest to a code of ethics written by the institute. The education focuses particularly on Fi360’s Prudent Investment Practices.Why Hire An Accredited Investment Fiduciary?
No online seminar can instill good ethics in someone. A financial advisor determined to cheat clients and prioritize commissions over sound guidance will do so. However the AIF credential tells you two things that can help in picking an advisor:
The AIF credential is all about trust, and you have to trust your financial advisor. If nothing else, it’s important to prioritize professionalism. It isn’t always best to trust your money to someone just because they can give you a better deal or happen to live closer to your commute. When it comes to choosing a financial advisor, professionalism and ethics can be the most important criteria.
Also, try to remember that this is your money too. You may want to look into the funds that your advisor recommends. Consider reading up on your investments and understanding exactly what (if anything) your advisor will get out of it. You’ve hired this person, so you’ll want to trust their opinion. But that’s no excuse not to do your own research too.Investing Tips
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