Asking for a Friend: What Does Being A Fiduciary Really Mean?

What Does Being A Fiduciary Really Mean?
Photo: @lucywilliams02

In my last article, The Case for Investing Over Saving—Make Money Like a Woman, we briefly touched upon looking for a fiduciary when you’re ready to invest. If you’re like me, that particular F-word got you to stop and think:

What exactly is a fiduciary? Being a fiduciary means that since you’re an SEC-registered investment advisor and you’re obligated to act in their clients best interests — and it means that you’re always chosen to be held to a higher standard. After all, when you’re divulging such important information about your personal finances to someone, you want to know that they have your best interests at heart.

It’s important to know that not all wealth managers are fiduciaries, but rest assured: There are trustworthy fiduciaries. Ellevest is one of them. The company aims to serve women’s needs better than any other existing system by using an algorithm tailored specifically to women’s incomes and life cycles.

Recognizing the need for something a bit less, how can we say it — testosterone-driven —  Wall Street veteran Sallie Krawcheck set out to create an investment platform designed around women. Starting as a research analyst at Salomon Brothers and eventually becoming the CEO of Smith Barney, Citi Bank Wealth Management, and Merrill Lynch Wealth Management, Krawcheck has now reinvented herself as a champion for women and their money. We asked Krawcheck all about what a fiduciary does so you don’t have to wonder any longer.

Here’s everything you need to know about where to put your money so it grows over time.

What Does a Fiduciary Do?

A fiduciary manages the investments for another party and has a legal and ethical obligation to put the other party’s interests first. For a financial advisor, that means helping a client make decisions in his best interest, even if it means reduced — or even no —compensation for the advisor.

How Do You Know a Financial Advisor Is Right For You?

How should you go about choosing the right one?  The most important thing is you need to like and trust them.  Ellevest creates financial portfolios comprised of exchange-traded funds that its team of female-led financial advisors rebalances based on your timeline and risk tolerance. The platform also offers the same main investment products (e.g. Roth IRAs, traditional IRAs, and investment accounts). With a 0.5% fee, Ellevest is significantly less expensive than traditional wealth managers, which charge around 1% per year.

All Good Things Start With An “F” (Food, Freebies, and Fiduciary)

The confusing part is that not all advisors are true fiduciaries, even when they claim to be. In a recent study by compliance consulting firm MarketCounsel, they released some shocking statistics on how advisors themselves perceived the term “fiduciary” and how it is standardized across the industry. After surveying 200 independent financial advisors, they discovered some interesting nearly 37 percent of respondents consider the term to be meaningless, given a lack of understanding of a fiduciary’s function, and 70 percent of all respondents say being a fiduciary is not determined by how an advisor is compensated, nor how the standard of care is disclosed (umm, that’s not OK).

I don’t know about you, but inconsistency is not my jam and I need to roll with a fiduciary that is 100% working in my favor. Krawcheck sees through the smoke and mirrors of many financial firms so she laid down the law to ensure the golden rule of “acting in your best interests” is adhered to, and that is why we look to Ellevest. When Krawcheck founded Ellevest, their goal was to build a modern company in a modern way: one that is technology-enabled but people-centric. And one whose goal is to disrupt the old way where it’s not working well and for whom it’s not working well.

Keep scrolling to see what makes Ellevest the best fiduciary for you.

They Are Transparent

Ellevest manages your investment portfolios in relation to your goals. They also have an easily accessible library of disclosures to show you how you’re getting the full and accurate picture of our services at all times.

How Much You’re Actually Paying

0.5% of assets under management for all accounts except for Emergency Funds (you don’t get charged anything for those). After doing my research, I’m telling you now – you’d be hard-pressed to find a traditional advisor who charges you anything that low. The trick is they primarily invest in low-cost ETFs, so the management fees — charged by the fund behind the ETF — on your investments range from 0.08% to 0.21%. Ellevest has kept this simple: Neither Ellevest nor any of its employees are paid on commission, and our fees do not depend on offering certain investments to our clients.

You Get More Than What You Pay For

As an Ellevest client, you’re paying for investment advice specifically aimed at getting you to your goal amount or greater in 70% of market scenarios (higher than most digital advisors). This involves building your recommended personalized investment portfolios, determining how much risk you can afford for each of your goals, and selecting the right investments to help get you there.

They Act In Your Best Interest

Ok, let’s talk about how Ellevest puts you first. First, they assess your financial situation, your goals, your priorities. They start by getting personal: When you sign up with Ellevest for a free financial plan (it takes 10 minutes — do it here), you tell them about yourself and your financial situation, choose the goals that fit your life, and share how you’d like to prioritize those goals. Then, Ellevest uses all of that information to create a personalized investment plan tailored to your specific wants — right there and then.

Because they want to give you greater confidence while planning for your future, they use models that include downturns at rates close to what we’ve seen historically. Other models, which many advisors use, have downturns occurring less frequently. This is because Ellevest believes that being more conservative — which their forecasts are — is in your best interests.

So there you have it: Ellevest has been a fiduciary since day one. From there, a personalized investment plan is created to build the best portfolio for you. Your financial situation. Your goals Your priorities.

When Should I Start Investing?

You should start saving for retirement … really yesterday. Start with your first paycheck. What if you haven’t started saving? Start right now. Here’s why: A dollar invested in your 20s is worth much more than your 40s, which is worth much more than your 60s. It’s never too early and it’s never too late.

Ready to invest?  Ellevest has no minimum so you can start investing with as little, or as much as you like.

PHOTO: Ellevest

Looking for more good reads? Here are a few: 

Best Career Advice You Could Ever Receive

The Personal Finance Tips Everyone In Their 20s Should Follow

Here’s How You Can Start Investing — Plus, $100 Free to Start

Questions? We’re here to help. Leave us a comment and we’ll get back to you!

Disclosures: We’re excited to be working with the team at Ellevest to start this conversation about women and money. We may receive compensation if you become an Ellevest client.