A User's Guide to Fee-Only Fiduciaries

You might have a difficult time asking for financial advice. Many people do.

You are capable of conducting research, weighing options, and making necessary financial decisions. While loss of critical time may eventually compel you to reach out to a financial advisor, your hesitancy to do so might be feeling that you cannot entrust your future to someone else. We understand that.

Fee-only fiduciary advisors don’t put their own financial interests first — ever. Clients in financial relationships are inherently vulnerable, so the instrumentality of fiduciaries is to protect clients and client assets from risk. Within financial markets and the wealth management business, fiduciaries are bound to serve in their clients’ best interests both ethically and legally in the United States.

No matter what your financial responsibility, the opportunity to plan for the future and preserve wealth for upcoming generations is in your hands.

Pro Tip: Legal & Ethical Standards

To uphold legal and ethical standards, the Securities and Exchange Commission (SEC) requires fiduciary relationships between investment advisors and their clients. Likewise, the Department of Labor (DOL) requires employer 401(k) and pension plan sponsors to understand their own fiduciary responsibilities and, when necessary or desired, to seek the counsel of fiduciary investment advisors.

Are you an employer or plan sponsor providing retirement benefits to staff?

Retirement plan sponsors are fiduciaries that have a duty to act in the best interests of their plan participants. However, selecting and monitoring 401(k) or pension plans are seldom a sponsor’s only responsibilities. Engaging fiduciary advisors to manage investment portfolios can ease administrative burdens and transfer risk to professional investment advisors.

Are you looking to secure your financial legacy for your family?

Affluent families that have grown their wealth due to hard work and talent need to select an advisor who understands their concerns and hopes for their beneficiaries and treasured charities. Patience and care are needed to ensure assets remain protected when future changes inevitably occur.

Are you in Tribal leadership, seeking to secure your Tribe’s economic strength?

Tribal governments need investment advisory services that preserve their tribe’s economic strength and diverse income streams. Tribal leaders deserve to work with professionals who understand and respect their tribe’s sovereignty and traditions.

Fiduciary Written Obligations and Disclosures

Regardless of the duties assigned and accepted by the fiduciary, their primary obligation is to be of service to their clients at all times.

A critical factor in a financial fiduciary relationship is that the scope of the fiduciary relationship must be agreed upon when the engagement is accepted. This formal process acknowledges the responsibilities accepted by the fiduciary and compels the fiduciary to perform those activities solely in the best interest of the client.

Fee-only fiduciary activities can span a wide range of responsibilities and activities such as:

  • Estate planning,
  • Asset allocation design, and
  • Investment implementation and monitoring.

REDW Wealth is a fee-only fiduciary.

We will never accept commissions, rebates, referral fees, or other product provider incentives. 12(b)-1 fees from mutual fund purchases, if available, are rebated back to the retirement plans that purchased them.

Fee-Only

Clients are charged fixed or hourly rates, or are billed based on the percentage of assets under management (AUM). Rates may vary due to the complexity of the work needed and the liability associated with the account size. The client does not pay the adviser any other form of compensation.

Fees & Commissions

Many advisors charge management fees directly to clients while also accepting commissions, rebates, or bonuses from the companies whose products they recommend and purchase on behalf of their clients.

Commission Only

Advisors are paid from commissions earned by selling clients specific products or services. Prices paid may contain hidden markups that inflate the price to absorb the fees. As it is well known in any industry, professionals who earn commissions may be biased to recommend one product over another to increase their income.

“Building a foundation of trust and loyalty is essential to any strong business relationship. The REDW Wealth team believes in establishing this foundation before clients ever walk through our door.

Using a fee-only compensation model sets us apart by providing transparency to the costs of our services and allows us to select from a broader range of investment products. This model lets us work in an environment that supports having an exclusive loyalty to our clients’ interests without any fear — on their part or ours — that our interests could be placed above their own.”

Paul Madrid

CFA®, CFP®, AIFA®

REDW Wealth Principal
Wealth Management
Practice Leader

4 Advantages of Fee-only Fiduciaries

Greater Transparency

Commission-based advisors purchase stocks, mutual funds, and other investment products on behalf of their clients and use various service providers to execute the exchanges. The advisors will likely disclose that they receive a percentage of the purchase price as their compensation, but other benefits they receive may not be as obvious.

Insurance premiums and other prices charged to clients of commission-based advisors may be inflated to reflect the seller’s commission expense. Rebates and bonuses received after a certain number of purchases may be earned from specific sales to several clients and are unlikely to be prominently defined and disclosed to each client.

Clients entering a business relationship with fee-only advisors are fully aware of the costs they will be charged for services rendered.

Conflicts of Interest

While fiduciaries and advisors are mandated to explicitly declare any potential conflict of interest, commission-based advisors have an inherent bias toward selecting products that benefit the advisor by virtue of receiving higher compensation.

When paying for services on a commission basis, commission-based advisors may have either an unconscious bias or an intentional bias. With unconscious bias there is no overt preference of one investment over another in a purchase decision, but the choice of product will be influenced by the knowledge that they would receive different remunerations from one to another.

Ethical and Professional Standards

Fiduciaries — particularly those that operate on a fee-only basis — are committed to adhering to strict professional standards in fulfilling their duties. Many, such as those at REDW Wealth, enroll in education and certification programs that build on their deep understanding of fiduciary duties and obligations.

Professional certifications, such as the Accredited Investment Fiduciary® (AIF®) Designation issued by The Center for Fiduciary Studies, requires training, passing a comprehensive exam, meeting experience requirements, and agreeing to ongoing training. Recipients of the designation must also adhere to the Accredited Investment Fiduciary Code of Ethics and Conduct Standards.

Broad Investment Options

A fee-only fiduciary advisor’s compensation rate remains the same, regardless of the investment selected or recommended for a client account.

It can take a great deal of effort to entrust others with assets that you, your tribe, or your organization has worked hard over the years to accumulate. REDW Wealth’s trusted advisors strive to make that decision to trust a bit easier by utilizing a fee-only compensation model which ensures that your goals, values, and needs will always remain center-stage.

“The perception of a conflict of interest can be as damaging as there actually being one.

Due to the amount of commission a wealth manager could receive, removing doubt or concern about why the choice of a specific insurance product (or mutual fund) is recommended frees our clients to focus on defining their goals and envisioning their future with much greater ease.”

Robert Elzholz

CFP®, CRPC®, AAMS®

REDW Wealth Senior
Investment Manager

Resources

Mindful & Meaningful Tools

Grow and Protect Your Wealth

Wealth Advisory & Consulting

Financial Planning

Wealth Management Guide

Retirement Essentials

Maximize Your Social Security Benefits

Wealth Insights

Apr 19, 2024 Investment Intelligence: Decoding What Matters in Global Markets
Apr 11, 2024 Reducing Risks in Retirement Plan Management with Paul Madrid, CPA®, CFP®, AIFA®
Apr 3, 2024 PCE Data Release Reveals Worrying Trend Despite Inflation Decline

We Can Help

At REDW Wealth, our collaborative approach is based on mutual trust and respect, as well as open, honest communication. We’re proud of the many long-lasting relationships we have had with our clients.

Contact Us

Fair and Balanced Statement

Adherence to our fiduciary duty is not a guarantee of client satisfaction or any particular outcome. Neither a financial advisor’s compensation structure, nor their professional credentials or designations, should be viewed as the sole determining factor in obtaining or retaining their services. Please see our disclosure page for further information on the professional designations discussed herein. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the advisor’s services will vary based upon a variety of factors, such as the client’s investment, tax, and financial circumstances and overall objectives. Past performance does not guarantee future results. All investing comes with risk, including risk of loss. Advisory services provided by REDW Wealth LLC. Tax and accounting services provided by REDW LLC.

Professional Designations