Do you need fiduciaries if you earn less than $100,000 per year? If you make less than $100,000 per year, you may believe that you do not require or cannot afford the services of a financial advisor. It’s not like you have millions of dollars in assets and cash to invest like Kanye West or Mark Zuckerberg. If you’re serious about investing, though, hiring a fiduciary (a form of financial counsellor) may be worthwhile.
What exactly is a fiduciary?
A fiduciary is a financial counsellor who is legally bound to operate in your best interests. When it comes to investing, this entails recommending investment products that are appropriate for you, your financial circumstances, and your goals – even if it means earning less or no money.
Fiduciaries can be individuals or legal entities such as a brokerage firm or a bank.
Non-fiduciary advisors, on the other hand, are bound to a lower degree of care, which means they may not recommend the best investment for you. It’s like a used car salesman pushing you to buy the more expensive automobile because he’ll make more money. Non-fiduciary advisors are not all like this, but some are.
Why Do You Need a Fiduciary?
If you’re going to engage a financial advisor, you should look for one who is a fiduciary. It may be more expensive, but you can be certain that the recommendations you receive will be beneficial to you.
Fiduciary advisors, according to the Securities and Exchange Commission, must:
- Clients must not be misled.
- Act with loyalty and good faith
- Provide full disclosure of investment facts
- Declare and avoid conflicts of interest (for example, if one investment will provide a bigger commission than another).
- Not using a client’s assets for their own or other clients’ profit.
If a fiduciary violates these regulations, it may be considered fraud, and the advisor may be barred from practicing or suffer other consequences.
Non-fiduciaries aren’t always the bad guys out to steal all of your money. However, they have the legal right to act in a way that advantages them over you. The manner these advisors are compensated (get money) can make it difficult for them not to act in ways that favour them.
Is it worthwhile if your annual salary is less than $100,000?
This is the million-dollar question. Is it worthwhile to hire a fiduciary if your annual income is less than $100,000? Maybe. It all depends on how much money you want to put up.
Fiduciaries can only be fee-based or fee-only in order to remain unbiased and deliver the best advice to clients. This means they are compensated:
- A set charge
- Hourly
- or on a per-service basis
- a proportion of assets under management
Because they do not receive a commission on the investments they recommend, their advise is unbiased and objective. It does, however, imply that you may have to pay extra for their services.
Fee-only consultants often charge $1,000-$3,000 per year and $150-$300 per hour.
It truly depends on how much you earn and how much you want to invest whether it’s worth it. A single person earning $80,000 may have more money to invest than a family making $60,000 and may feel it worthwhile to pay for a fiduciary advisor.
If you only have a modest quantity of money to invest, it is most likely not worth the cost.