When people want to know if a financial advisor or financial planner has a fiduciary duty, those who have the accredited investment fiduciary, or AIF, designation stand out from the crowd. Having this designation qualifies financial advisors to act as fiduciaries, thereby looking out for the clients’ best interests when performing their jobs. Of course, not every investment advisor acts as a fiduciary.
Nevertheless, the past few years have seen an increased emphasis on fiduciaries in the financial services industry from the Securities and Exchange Commission, the Department of Labor, and the Financial Industry Regulatory Authority. For this reason, it is now more important than ever for advisors to rise above the minimum standard. Indeed, acquiring the AIF designation is an important step towards holding advisors to a higher standard, one in which they protect clients’ interests.
Before we take a closer look at the accredited investment fiduciary certification, it may be helpful to examine what is meant by fiduciary duty.
Fiduciary duty is considered the ultimate standard of care in the financial advisory industry. It denotes that a financial professional is obligated to put his or her clients’ interests first. In essence, it means that this person has the responsibility to act for others with both trust and honesty.
Because a fiduciary must act in the client’s best interest at all times, it may require him or her to act against their own best interest. In other words, a fiduciary can only suggest an investment if it is the best option for their client, regardless of how it may affect the fiduciary advisor.
On the other hand, advisors who aren’t fiduciaries are only held to the “suitability standard.” In this case, the advisor need only ensure that an investment is suitable for the client before recommending it. For instance, an advisor can suggest an investment that may earn him or her a hefty commission even if there’s another option that would work equally well for the client at a lesser cost. Instead, a fiduciary would be obligated to recommend the cheaper investment.
Furthermore, fiduciaries have a duty to get rid of any conflicts of interest and disclose any that cannot be eliminated. Consequently, fiduciary financial planners are not allowed to earn commissions on products they sell because it would incentivize them to peddle higher-earning products instead of ones that benefit the client.
What Is an Accredited Investment Fiduciary Certification or AIF?
An AIF certification means that an individual has met certain educational, ethical, and competence standards that qualify him or her to act in the best interest of their clients. This designation is administered by an organization called Broadbridge Fi360 Solutions. They are accredited by the American National Standards Institute to offer the AIF certification, which is recognized by FINRA as a financial industry certification.
Basically, this designation means that someone who handles other people’s money or provides advice on their investments thoroughly understands and adheres to their fiduciary duty. Having your AIF designation shows that an individual is not just another advisor proclaiming they are a fiduciary; they take their fiduciary responsibility very seriously. For this reason, many financial professionals add an AIF to existing credentials like the certified financial planner designation.
How Do You Become an AIF?
To qualify for the AIF certification, an individual must have a bachelor’s degree or higher unless they have at least five years of relevant, nonadministrative experience in the financial services industry and another professional credential or a minimum of eight years of such experience in the industry without the additional credential.
The aforementioned organization, Fi360, takes care of the training phase of the AIF designation, which can be taken online in a self-paced format, a virtual classroom format, or the capstone format. Although the time needed to complete the training depends on the format, candidates should expect to spend anywhere from 20 to 25 hours on AIF training in addition to perusing the “Prudent Practices for Investment Advisor” handbook before taking the exam.
The exam itself consists of 80 multiple-choice questions of which 70 are scored and 10 are unscored trial questions. Applicants have two hours to finish the test and need a score of 70% to pass. Furthermore, candidates have a year after passing the AIF exam to satisfy the other requirements. If they don’t finish all the requirements within a year of taking the test, however, they must retake the exam to get the certification.
Dues for the AIF certification are $325 for the initial year. In addition to annual dues, every AIF must complete six hours of continuing education to maintain the certification. And four of those hours must come from Fi360 or one of Fi360’s approved providers.
Who Needs an AIF Designation?
Most people who acquire the AIF designation are financial services professionals who work as Registered Investment Advisors (RIAs). Often they are involved in retirement planning and private wealth management, or they run large endowments or foundations with investment and planning needs that want to align with fiduciary practices. It’s important to remember that the AIF certification doesn’t entail any added responsibilities for the financial advisor or retirement planner who achieves it. Instead, it tells clients that this person operates under a higher standard of care than other investment professionals.
Should You Hire an Accredited Investment Fiduciary?
Making financial decisions about your future can be a daunting prospect. However, an accredited financial advisor can make these decisions much easier. One of the best things about having a financial professional on your side is the education and guidance this person can provide.
Finding out more about your retirement and wealth-management options is an integral part of planning your financial future. Fortunately, an AIF can offer sound financial advice to put your long-term goals within reach. Nevertheless, you still have to figure out if the value they bring is worth the cost. Before hiring an accredited investment fiduciary, you should always weigh the pros and cons, regardless of whether you’re looking for advice on paying off debt or investing your extra income.
What Are the Risks of Managing Your Own Money?
If you are unsure whether to seek the help of an fiduciary financial advisor, consider everything you will have to handle on your own regarding your finances. For instance, do you need a traditional or a Roth IRA or both? Furthermore, you will have to compare different IRA providers before making any decisions. Your work doesn’t end there, however. You will have to stay current on any relevant financial news such as changes in legislation that could alter your retirement planning; changes in mutual fund options at your brokerage firm; and changes in annual retirement account contributions.
More importantly, you will be responsible for creating a detailed, long-term financial plan that factors in a comfortable retirement, paying down your mortgage, funding your children’s college educations, and estate planning. Your plan should also take into account the date you plan to retire. While this is certainly possible to do on your own, it will require a significant investment of your time. In other words, you can manage your own finances, but is it worth it in the long run?
The Dangers of Not Hiring an AIF
Although hiring a competent financial advisor can grow your wealth significantly, hiring an incompetent or unethical one can cost you quite a bit of money. A financial advisor can hurt your wallet by churning your accounts or recommending investments that pay him or her high commissions but do little to grow your portfolio. For example, they may steer you toward mutual funds with high expense ratios when a similar low-cost index fund or an Exchange Traded Fund (ETF) would be a better choice.
They can also hurt you by being unreachable, especially when changes in the market may demand their immediate attention. These kinds of shady or careless business practices demonstrate how important it is to have an accredited investment fiduciary on your side.
How Much Does a Financial Advisor Cost?
Naturally, there are costs associated with hiring a financial advisor, whether a fiduciary or not. Nevertheless, financial professionals make money in different ways. Some charge an hourly rate, and some make commissions from the investment products you purchase through them. Others, of course, do both.
On the other hand, most fee-only investment advisors charge a fee equal to a percentage of your invested assets. A common industry benchmark is one per cent of assets under management, although some advisors may charge a bit or less. And some finance professionals earn fees not from clients but rather from banks and investment companies.
If you’re still contemplating whether you need a financial planner or if you should go it alone, think about how much time you are willing to devote to growing your finances. Has anything changed in your life that will enable you to put aside more time for your investments than you had beforehand? Moreover, you should also think about how you could benefit from an accredited investment fiduciary who has the expertise to look after your best interests. In other words, don’t just weigh the pros and cons of finding someone to look after your finances. Weigh the pros and cons of hiring someone who has a fiduciary obligation to you against someone who isn’t held to nearly the same standard.