Six Important Ethical Standards to Expect from Your Financial Advisor

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When it comes to investing money, financial advisors not only help in managing your assets but also in planning for your financial future. While hiring a financial advisor, it is essential that you choose an advisor who is best suited to meet your financial needs and goals, while also following appropriate ethical standards. Practicing good ethics is a vital aspect of being a competent financial advisor. Thus, when choosing a financial advisor, take time to understand their ethics and values so you may make an informed final decision.

Let’s discuss some of the ethical standards you can expect from a competent financial advisor:

1. Fiduciary standard for ethical financial planning

To secure your financial future, you should look for a financial advisor who offers you bona fide advice and places your interest before their own. A financial advisor who follows the fiduciary standard is a professional who is governed by a fiduciary duty to look after your needs first and foremost. They are governed by an ethical code of conduct and have taken a lawful pledge to act in your best interest at all times. Thus, they ensure that their advice is accurate and suited to your needs. They ensure that the occurrence of any disputes is minimized while taking steps to ensure transparency in their service to you. In addition, fiduciary financial advisors do not use your assets for their benefit. They do not earn any commissions on any financial products sold by them to you. If any fiduciary advisor violates their fiduciary duty, you can take legal action against them. Generally, transgressions in a fiduciary relationship occur in instances wherein the advisor fails to honor the fiduciary relationship – making needless transactions to earn an extra commission, misrepresenting facts, undertaking an unauthorized trade, oversight in trading leading to a loss, and more. The sure-shot way of knowing if your advisor is a fiduciary or not is by checking their certifications/registrations.

Typically, an advisor is governed by fiduciary duty if he/she is registered with the United States Securities and Exchange Commission (SEC) or state securities regulator. You can also choose from a financial advisor holding any of these three designations:

Financial advisors having the aforesaid designations are bound by a fiduciary duty and must heed ethical standards when it comes to financial planning. Moreover, you can make use of’s advisor match tool to find a fiduciary advisor. This tool employs complex algorithms to match you with pre-screened advisors in your area who are suited to your needs. These recommendations are given after carrying out a careful analysis of the experience, compensation arrangement (fee-based or fee-only), and licensing and disclosures of the financial advisor.

2. Ensuring transparency in financial decisions

You should make an effort to hire a financial advisor who values integrity. The purpose here is to find someone who is not driven by personal gains but a sense of honesty and candor. However, this does not imply that your advisor must comply with all your opinions and ideas. A financial advisor can have a difference of opinion with you or commit an honest mistake. However, they must be able to explain their reasons for their differing views and offer a sincere explanation if they have erred. An honest advisor would own up to his actions, place your need above theirs, offer credible advice when you need it, be reliable and candid about their beliefs, and respect your views. They would not try to swindle you or make a false statement that would jeopardize your position in the market.

3. Competency and thoroughness in financial guidance

To offer sound advice as per ethical standards, a financial advisor needs to be competent. Try to ascertain whether the advisor has the requisite knowledge and skills that can contribute to your growth. If the advisor is unable to provide the required professional guidance, he should be honest enough to inform you in advance before you hire him.

A financial advisor must also respond to your queries in a timely manner. Apart from competency, you should hire a financial advisor who has suitable experience, caliber, certifications, and designations. Ideally, you should go for an advisor who is solely regulated by the SEC; however, someone who is partially or wholly regulated by FINRA can also be an option. Apart from this, you can also consider an advisor who has a CFP (Certified Financial Planner) certification and is regulated by a fiduciary duty, even though they may not be FINRA compliant. Some other credentials to look out for when choosing a financial advisor are Personal Financial Specialist (PFS), Chartered Financial Consultant (ChFC), etc.

4. Inculcates transparency in business practices for unbiased advice

A good financial advisor has to be honest and forthright in all dealings with his client and disclose all possible material conflicts of interest. To this end, the advisor must disclose any facts that can help you make sense of common conflicts or business practices that may lead to disagreements between you and your advisor. It is in the best interest of both you and the advisor to find the root cause of an issue and work together to resolve it in a mutually beneficial way. Moreover, if your advisor has failed to take steps in the right direction, then you need to start thinking of alternatives. In addition, your financial advisor must disclose their compensation method and fee structure. Generally, financial advisors make use of one of the following two methods:

  • Fee-based: A fee-based advisor receives both fees as well as a commission based on the financial products that you buy through them.
  • Fee-only: A fee-only advisor receives compensation for their services only and does not receive any sales-based commission.

It’s generally advised to go for a fee-only advisor as these advisors are more inclined to work for your benefit rather than look to further their interests at your expense. They offer you unbiased advice bereft of any personal motivation. With that said, the choice is yours and the underlying objective here is to make sure that your advisor is transparent when it comes to their fee charges, disagreements, conflicts, and more.

5. Professionalism and expertise in offering financial services

Professionalism is the bare minimum that is expected of a financial advisor. They should be open and welcome to queries from you while adhering to ethical norms at the time of dispensing financial advice. An experienced financial advisor would know to treat his/her clients (existing or potential) with dignity, courteousness, and respect. Furthermore, the advisor’s actions should be within the purview of the law. They must comply with and be aware of the financial laws, rules, and regulations governing professional services, and most importantly, not seek to violate these standards either themselves or help another person in doing so.

6. Offers confidentiality and privacy to protect your financial information

Confidentiality and privacy are the most important ethical standards that you should expect from your financial advisor. An ideal advisor would not divulge your personal financial information to anyone or misuse it for his/her benefit. Also, if your advisor discloses sensitive information about any of his/her previous or existing clients to you, you should be wary of them. The advisor can very easily reveal your personal information to someone else as well. With that said, if your advisor does reveal any financial information for business purposes, it should be at your behest and with your expressed consent.

So, when would such an occasion arise? In some instances, pertinent details need to be sent to either your attorney, accountant, legal representative, or auditor to undertake various financial planning tasks. However, this should only occur after you’ve given your approval. Under no circumstances should your advisor use your personal information for their direct or indirect benefit. The advisor should take the necessary steps to ensure that your financial details are not compromised either physically or electronically.

Apart from evaluating whether your financial advisor adheres to the aforesaid ethical standards or not, you should be aware of certain signs that may alert you about an unethical financial advisor. These are:

  • Manipulating reporting of financial performance to cover poor returns to commit fraud.
  • Pushing to buy or sell a financial product without offering any substantial justification for it.
  • Overexaggerated claims about the performance of your investment portfolio.
  • Providing strong predictions of financial aspects such as interest rate, government policies, etc.
  • Not offering sound advice or taking measures to improve returns but being more concerned with advertising financial products.
  • Making decisions hurriedly on impulse rather than following a comprehensive investment approach.
  • Being evasive about finance or investment-related queries.
  • Speaking financial jargon that may not be easy for you to comprehend.
  • Making use of inappropriate or unrealistic benchmarks to compare financial performance or failure as against standard benchmarks.
  • Furnishing fake credentials and certificates or not revealing records of disciplinary actions.

An ethical financial advisor helps you understand the rationale behind his decisions, shares with you the costs and risks involved, recognizes your expectations, and delivers accordingly while mutually benefitting from the association. This helps in creating an ethical relationship between you and your financial advisor, wherein you trust your advisor to act in your best interests, agree with their method of functioning, and understand the ramifications of their recommendations.

To conclude

A financial advisor can hold the cards to your financial future. Hence, it would benefit you if you choose an advisor who followed good ethical practices – offered you sound financial advice, suggested good investment opportunities, and kept your goals a priority. In addition, he/she should work towards helping you achieve your financial objectives, be it retirement planning, tax minimization, debt reduction, estate planning, and more. So, make an informed choice to ensure your money is in safe hands.

To find a qualified financial advisor who can help meet your financial dreams and goals, use our free tool to get matched with 1-3 vetted financial advisors and get on building a secure financial future today.

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The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.