Do You Need a Fiduciary if You Make Less Than $100K a Year?
If you earn less than $100,000 per year, you probably assume that you don’t need or can’t afford a financial advisor. It’s not like you’re Kanye West or Mark Zuckerberg with millions of dollars in assets and cash to invest. But a fiduciary (a special type of financial advisor) may be worthwhile if you’re serious about investing.
What is a Fiduciary?
A fiduciary is a special type of financial advisor that is legally obligated to act in your best interest. When it comes to investing, this means recommending investment products that are best for you, your financial situation and your goals – even if that means they earn less or no money at all.
Fiduciaries can be people, or they can be a legal entity, like a brokerage firm or a bank.
Non-fiduciary advisors, on the other hand, are held to a lower standard of care, meaning that they may not recommend an investment that’s in your best interest. It’s like a used car salesman who pushes you to buy the more expensive car because he’ll get a bigger commission. Not all non-fiduciary advisors are like this, but some are.
Why You Want a Fiduciary?
If you’re going to hire a financial advisor, you’ll probably want a fiduciary. It may cost more, but you can be sure that the recommendations you receive will actually benefit you.
According to the Securities and Exchange Commission, fiduciary advisors must:
- Not mislead clients
- Act with loyalty and good faith
- Provide complete disclosure of facts related to investments
- Disclose conflicts of interest (like if one investment will provide a higher commission than another) and avoid them when possible
- Not use a client’s assets to their own benefit or to benefit other clients
If a fiduciary violates these rules, it may be considered fraud, and the advisor may lose the ability to practice or face other penalties.
Non-fiduciaries aren’t necessarily the bad guys looking to grab all of your money. But they can, legally, act in a way that benefits them over you. The way these advisors are compensated (earn money) can sometimes make it difficult for them not to act without benefiting themselves.
Is it Worth it if You May Make Less Than $100k/Year?
The million-dollar question. Is a fiduciary worth it if you make less than $100,000 per year? Maybe. It depends on how much you want to invest.
In order to stay unbiased and provide the best advice for clients, fiduciaries can only be fee-based or fee-only. This means that they are paid:
- A flat fee
- On a per-service basis, or
- A percentage of assets under management
Because they don’t earn a commission on the investments they recommend, their advice is independent and non-biased. However, it also means that you may pay more for their service.
Generally, fee-only advisors charge $1,000-$3,000 annually and $150 to $300 hourly.
Whether or not it’s worth it will really depend on how much you earn and how much you want to invest. A single person earning $80,000 may have more money to invest than someone earning $60,000 with a family and may find it worth paying for a fiduciary advisor.
If you only have a small amount of money to invest, then it’s probably not worth the expense.