The financial world is rife with terms and jargon that might confuse the average person, who may be unfamiliar with the intricacies of how they work. If you’re unsure what a fiduciary is or are confused about the distinction between a fiduciary and a financial advisor, keep reading.
We’ve put together the answers to the most common questions about fiduciaries, as well as the benefits they offer.
What Is a Fiduciary?
A fiduciary is an individual or organization, such as a bank or other financial institution, that has taken on the responsibility of acting on behalf of a beneficiary. In particular, a fiduciary is required to act in the best interest of their clients—with complete trust, good faith, honesty, and integrity.
Much like bankers and attorneys can be held legally liable for acting against the best interests of their clients, so can fiduciaries. Fiduciary financial advisors provide financial services and manage financial assets for their clients with fiduciary duty, which sets them apart from regular financial advisors.
How Does Fiduciary Duty Work?
Fiduciary duty comprises two main responsibilities:
Duty of Care: Fiduciary financial advisors fulfill their duty of care by critically analyzing the available information to make decisions, recommendations, or plans regarding the assets of their beneficiaries. They review and understand their beneficiaries’ needs, goals, and situations before making any business decisions.
Duty of Loyalty: Fiduciaries are bound to their client’s best interests, meaning that they cannot have any undisclosed conflicts of interest, whether economic, personal, or private. The foundation of a fiduciary relationship is that of trust and loyalty.
Is There a Difference between a Fiduciary and a Financial Advisor?
The main difference between fiduciaries and financial advisors is that not all financial advisors are fiduciaries. A fiduciary financial advisor is bound to follow more laws and regulations than a financial advisor since they need to operate as if they are the beneficiary they represent. Unlike a financial advisor, a fiduciary is legally bound to live up to the trust and transparency expected of them.
People can also receive fiduciary services outside of financial advisory services. For example, board members can have fiduciary responsibilities towards their companies, and retirement plan administrators have a fiduciary duty towards their company’s employees.
4 Reasons You Need a Fiduciary Financial Advisor
There is a lot of murky legislation surrounding financial advisory services—which makes it all the more important to ensure that you work with a fiduciary financial advisor. Here are some of the advantages you can get with a fiduciary:
Held to Fiduciary Duty
Fiduciary duty is a legal obligation to put the client’s interests first. If you have a fiduciary, they must act solely towards your financial interests. It is similar to the relationship between a doctor and their patient, where doctors are bound to provide the best care possible for their patients.
Fiduciaries, therefore, cannot recommend any financial strategies that don’t benefit you in the best way since a violation of fiduciary duty can result in legal action taken against them. A non-fiduciary financial advisor, on the other hand, can knowingly sell you high-investment, low-performing securities, but you will not have the same legal standing against them.
Complete Transparency
Fiduciary advisors are bound to loyalty, trust, and transparency. Since fiduciaries aim to remove conflicts of interest, they can act solely in your best interests. Fiduciary financial advisors do not take their duty lightly, so they will only make the financial decisions and investments that they believe fit their clients best.
With a fiduciary, you won’t have to worry about the fine print. Even if you find something confusing, your fiduciary financial advisor will make sure to shed light on every aspect you need to know. In addition, all investment advice will be tailored to your specific needs, unlike non-fiduciary financial advisors who are not obligated to disclose any information about commissions or fees they might receive from your investment.
Investments on Your Behalf
Financial planning is a constantly evolving process and having a strong financial legacy means making the right decisions and changing them as and when appropriate. But this is a lot to ask of most people, who might have to engage in some guesswork when making financial or investment decisions.
Having a fiduciary financial advisor can help take some stress off your hands. The question of whether you should allocate your funds to the U.S., international equities, or alternate forms of investments is no longer one you will have to answer alone. Since a fiduciary works in your best interest, they will perform a risk assessment, analyze your goals, and consider your unique preferences when investing on your behalf.
Highest Standard of Care
Fiduciary duty means that your fiduciary financial advisor will always act in your best interests, even if it is detrimental to theirs. For fiduciaries, this means recommending products or investments that can result in low or zero compensation for them, as long as it aligns with their client’s best interests. They’ll help find the best securities for your needs and explain the process every step of the way.
According to the U.S. Securities and Exchange Commission, fiduciary duty involves:
Acting with good faith and undivided loyalty.
Providing full disclosure of all material facts.
Avoiding conflicts of interest.
Not using a beneficiary’s assets for personal use or the use of others.
Not misleading their beneficiaries.
Protect Your Financial Legacy with Fulcrum Wealth Advisors
When it comes to financial professionals, you must look for someone who follows the fiduciary standard. With a fiduciary, you’re not just getting financial advice you can trust but also the confidence that comes with knowing that the person managing your money and assets is always acting in your best interest.
At Fulcrum Wealth Advisors, we give businesses and families the knowledge and resources they need to make sound financial decisions. By creating unique solutions, we believe that all our clients can pursue their financial goals. To get a complimentary strategy session, contact us today.
*All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy or type will be successful.
**Investment advisor representative of securities and investment advisory services offered through Cetera Advisor Networks LLC, member FINRA/SIPC, a broker/dealer, and Registered Investment Advisor. Cetera is under separate ownership from any other named entity. In addition, some Investment advisory services are offered through Fulcrum Wealth Advisors, LLC. Fulcrum Wealth Advisors, LLC is a registered investment advisor in the State of Washington.
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