Free Guide To Hiring A Fiduciary
It can be challenging to know what you should look for if you are considering hiring a fiduciary to help reduce your liability or guide you through a decision-making process. This guide will walk you through everything you need to know when hiring a fiduciary.
What is a fiduciary?
At its most basic level, a fiduciary is someone with a legal duty to act in the best interests of another person or organization.
Sometimes fiduciaries are referred to as “advisors”[ https://www.investopedia.com/managing-wealth/when-should-you-hire-financial-advisor/]. There can be many different types of fiduciaries or advisors. For example, you might have a financial advisor who helps guide you on your personal investing decisions. These people are often referred to as “financial advisors” but can also be considered fiduciaries because they must act in your best interests when guiding investment decisions.
Another example is the kind of work I do. I act as a fiduciary for companies looking to create retirement plans. Choosing a retirement plan can be stressful because of the liabilities involved. For example, if a company selects a service provider that has excessive fees, the company can be held liable by the Department of Labor.
If you are reading this, chances are that you are acting as a fiduciary to your employees. Decision makers within a company have a fiduciary duty to their employees when choosing which service provider to use for their employee’s retirement plans. This “fiduciary duty” is why decision-makers have been held liable by the Department of Labor for their choice of a service provider.
Whether or not it is fair to hold companies accountable for the greed of service providers, this fiduciary duty is a reality of our modern corporate landscape. Hiring a third-party fiduciary or “advisor” can help reduce the company’s liability when choosing a service provider for retirement benefits.
What should I look for when choosing a fiduciary?
If your company might benefit from involving a fiduciary, there are a few things you want to consider when picking a professional to help you along the process.
Choose someone completely independent.
The most significant benefit to hiring an outside fiduciary is that they can provide you with objectivity and insight. You don’t want to hire a fiduciary connected to a particular service provider. If a fiduciary has connections to specific service providers, this presents a conflict of interest.
Choose someone trustworthily.
When you are hiring a fiduciary to help in the decision-making process, you need to be able to trust them. A fiduciary is legally required to look out for your best interests, but it is essential that you trust their knowledge and experience as well. Booking a consultation to talk to potential fiduciaries about their experiences and judge personality match is critical to finding someone you can trust.
Look for experience.
Think about it: You wouldn’t let an intern make hiring decisions for you. Even if they are cheaper than hiring a qualified HR manager, there are significant downsides to having someone inexperienced make big decisions for your company. Choosing a fiduciary with experience in the field is essential when seeking investment, financial, or legal advice. The more experience a fiduciary has in their domain, the stronger their knowledge base will be.
Consider liability.
One of the primary reasons I started my business is because I had come to the shocking realization that greedy service providers were creating unnecessary liability for companies. Unfortunately, many service providers are not applying best practices, and the Department of Labor has held decision-makers within the company liable for using these services. This is why it is fiduciaries can play a huge role in reducing your company’s liability.
It is precisely this liability that makes a quality fiduciary worth the cost. What you will pay for their advising service will be a fraction of what you might pay down the line if you find yourself held accountable for the mistakes or greed of a poorly operated service provider.
Can your fiduciary help you with the decision-making process?
You can significantly reduce the chance of being held liable for breaching fiduciary duty when you hire an independent fiduciary. The entire point of a fiduciary is to help you with the decision-making process.
Can your fiduciary help eliminate liability?
Depending on your selected service, you can transfer fiduciary liability to your investment manager. This is the best option if you want to minimize your liability as much as possible.
This could be a red flag if your fiduciary is unwilling to take on any legal liability. If you want to significantly reduce your liability by using a fiduciary, you will typically be charged a higher rate for this liability reduction. Suppose your fiduciary doesn’t offer any services that allow you to reduce your legal liability significantly. In that case, this might indicate that the fiduciary is not confident enough in their advising abilities to provide a high-quality service.
Consider specialty.
Not all fiduciaries are created equally. Many fiduciaries specialize in a variety of different fields to maximize the profits of their business. You should use a fiduciary that works exclusively in the domain you will hire them for. If your fiduciary is a generalist, they might need to gain the specialized knowledge to inform you about high-stakes decisions.
After I have found a potential fiduciary, what should I do next?
Make A Consultation
The first step you will take when you find a fiduciary that meets your criteria is having an initial consultation with them. Typically, this initial consultation should be free. The purpose of this consultation is to help the fiduciary understand your needs and ask any questions you might have.
We recommend preparing questions ahead of time. You should ask the fiduciary about their experience, their prices, and which service is the best fit for you.
Talk With Involved Parties
After you have had your initial consultation, it is time to have a meeting with anyone involved in the decision-making process. Discuss which service is best for you and whether you have any concerns about the fiduciary you have met with.
If you are the sole decision maker and don’t have anyone to discuss this with, consider reaching out to a mentor or peer in your industry. Having someone else to discuss a decision with can help clarify you.
After you have found a fiduciary you trust, you can turn to them for consultation and decision-making input.
Develop A Plan With Your Fiduciary
Sit down with your fiduciary and lay out what you are looking for. If you are searching for guidance on investments, talk about the characteristics of your company. This will help your fiduciary determine which assets will fit your needs.
Review Independent Benchmarks
When making decisions with your fiduciary, you should be provided with independent benchmarks to help analyze your options. Your fiduciary will walk you through the examples and help you to understand the data.
Consider Recommendations & Make Decisions
After your fiduciary has analyzed the investment menu and independently benchmarked the plans, they will make recommendations for you. If you have your fiduciary act as an advisor, you will make the final decisions on the plan. If you have hired the fiduciary to act as manager of the plan, they will make the final decision and therefore take on the liability associated with decision-making.
How do I know I need a fiduciary?
If you aren’t sure whether a fiduciary is necessary, there are a few things you might want to consider.
Do I know how to conduct independent benchmarks?
It is never a good idea to rely solely on the benchmarking tools that service providers create. There are often inherent biases in these tools to promote sales. This is why having the knowledge base necessary to conduct independent benchmarks is essential.
What is my knowledge basis of investment?
If you are going to develop your retirement plan for your company, it is essential that you have a strong knowledge basis of investments. If investing is not one of your fields of expertise, it is better to delegate to a fiduciary.
How much time do I have to devote to research?
You will want to consider how much you enjoy researching investment and wealth management topics. If you don’t have a strong personal interest in these topics, it is probably best to outsource the research to a fiduciary.
What is my legal knowledge of the liabilities associated with investment?
You might have a solid knowledge base in investment but need to gain knowledge about the legalities of selecting investment plans for your company. As a decision maker, if you choose service providers for your employees to invest with, you have a fiduciary duty.
What is your time worth?
Many competent decision-makers are interested in learning more about investments and building their legal knowledge but don’t have the time to make a retirement plan. We all know that time is money, and the best decision-makers know when to outsource their labor.
What is your timeline?
Generally, if you are developing a company retirement plan or making other important investment decisions, you have some timeline you need to meet. Hiring a fiduciary to help you establish a retirement plan can help you meet essential deadlines.
Do you have other projects that need your attention?
Even if you can put together your own retirement plan, create independent benchmarks, and document the decision-making process, you might still want to hire a fiduciary if you have other projects that demand your attention. As a decision-maker, there will be some aspects of your job that can not be outsourced. In this case, it is better to hire an experienced individual to take care of your investment planning so that you can focus on the other essential aspects of your job.
Do I have the time for long-term management?
When deciding whether or not to bring a fiduciary into the decision-making process, you also want to consider the long-term management of the retirement plan. If you don’t have time to monitor the portfolio, you might want to involve a third party.
How much does it cost to hire a fiduciary?
The cost of hiring a fiduciary will typically depend on your company’s specific needs and the services you require. This is why it is essential to book a free consultation call when you find a fiduciary you are interested in hiring. During the call, you can discuss the services which best fit your needs, and they will be able to provide you with a quote.
Can I still make the final decisions when using a fiduciary?
If maintaining control of final decisions is highly important, you may opt for an investment advisor service rather than an investment management service. With an investment management service, you outsource complete control of fund management. Many people prefer this service because it does more to reduce liability when compared to mere advising. However, if you are more comfortable maintaining discretion over all final decisions, you might prefer an advising service. Almost any fiduciary who provides management services will be equally happy to let you maintain absolute decision-making power. It ultimately comes down to your preferences.
Why can’t I hire a financial planner instead of a fiduciary?
Not all financial advisors are created equally. It is essential that you hire an advisor that has a fiduciary duty to you. If your advisor doesn’t have a fiduciary duty to you, they may be inclined to guide you towards investments they are interested in. Choosing a financial advisor or manager with fiduciary duty ensures they will not prioritize their own interests over yours.
Book an appointment today if you are looking for a fiduciary to help develop the perfect retirement plan. I offer a free initial consultation, and all you have to do is book through my Calendly. I am an experienced fiduciary focusing exclusively on helping companies develop retirement plans. I offer both advising and management services, and I operate entirely independently.
