Business
Explaining Fiduciary Duty
Discover what a fiduciary is, why this standard of care is trending, and how it ensures your financial advisor acts in your best interest.
What is it?
A fiduciary is a person or organization that has an ethical and legal obligation to act in the best interests of another party. In finance, this typically refers to a financial advisor or manager who must prioritize their client's interests above their own. This 'fiduciary duty' is the highest standard of care in the financial industry. It means the advisor must avoid conflicts of interest and provide impartial advice based solely on what is best for the client. This contrasts with the 'suitability standard,' where an advisor only needs to recommend products that are suitable for a client, even if they aren't the absolute best or most cost-effective option.
Why is it trending?
The term 'fiduciary' is gaining traction as investors become more educated and demand greater transparency from the financial industry. There have been significant regulatory discussions, such as those surrounding the Department of Labor's Fiduciary Rule, which have brought the concept into the public spotlight. Consumers are increasingly aware of potential conflicts of interest, like advisors earning higher commissions for selling certain products, and are actively seeking professionals who are legally bound to serve their best interests.
How does it affect people?
Working with a fiduciary directly impacts an individual's financial well-being. It provides a layer of protection and trust, ensuring that investment recommendations and financial planning strategies are designed to help you achieve your goals, not to enrich the advisor. This can lead to lower fees, better investment performance, and a more secure financial future. When choosing a financial professional, asking if they are a fiduciary is one of the most important questions to ensure your assets are being managed with your best interests at heart.