What is a Fiduciary? More importantly, why should you care?


Ok, so I abhor using financial jargon. My audience has no use for it… usually. The term fiduciary, however, is one term that I want all my listeners, readers, clients, family, and friends to know and understand fully. It’s THE word that carries more weight than titles and designations.

The word “fiduciary” serves as a giant banner of professional integrity in financial services. While anyone can call him or herself a financial advisor, not everyone can claim to be a fiduciary, and this, my friends, is very important.

Here is what you need to know about the Fiduciary Standard and why you should care.

What is a Fiduciary?

A fiduciary is a financial professional who is bound ethically and legally to act in the clients’ best interests. It’s not optional.

Financial advisors who are fiduciaries have the highest legal duty to perform services and offer products that are best for you. Not satisfactory. Not just OK. Not suitable. Best. Fiduciaries are sworn to the highest levels of care when it comes to your financial well-being. Period.

Ok. You get it. So, why should you care? How does this role and this word impact you and your life?

Why Investors Should Care About the Fiduciary Standard of Care

Well, it’s simple. If you were diagnosed with a life-threatening ailment, you wouldn’t want to go to a doctor that would offer you an OK or “suitable” treatment for your disease. You, I assume, would want the best care possible that has the highest likelihood of saving your life.

Your personal finances may not seem life-threatening, but they are certainly life-altering. The decisions you make with your money today, how you invest it, and who you entrust to help you manage your savings will impact your life today, tomorrow, and the legacy you wish to leave behind.

Not All Financial Advisors Are Fiduciaries

It may come as a surprise to some people to learn that not all financial advisors are fiduciaries. In fact, the title “financial advisor” is unregulated so pretty much anyone can call him or herself a financial advisor. Crazy, I know.

Whether a financial advisor is legally bound to the fiduciary standard of care depends on the classification of the financial advisor. In fact, Under the new SEC reforms, brokers do not have to operate under a fiduciary standard. Financial advisors operating through a broker-dealer are not required to provide services to their clients under the fiduciary standard of care as defined by the CFP Board, which awards one of the most sought after designation in the industry. Instead, broker-dealers provide services under the “suitability standard of care,” which is a lesser standard that, as the standard itself suggests, only has to be “suitable” for the client.

CERTIFIED FINANCIAL PLANNERS™ are held to the fiduciary standard of care and must abide by it in their financial planning profession in order to maintain the CFP designation.

What has become a sticky issue for some financial professionals, particularly those employed with retailers, is if their CFP designation requires the fiduciary standard of care as outlined by the CFP Board but their firm affiliation does not. It continues to be a point of conflict for many financial advisors. For instance, State Farm required its 500 or so CFPs to abandon the designation back in 2009, and Edward Jones advisors find themselves questioning whether they will be allowed to continue using the CFP designation present-day.  

What to Know About the Fiduciary Standard

The fiduciary standard has become a beacon if you will, a gold standard within the financial services industry. The CFP Board continues to expand its definition of the fiduciary standard and reinforce its commitment to the public. It wants the CFP designation to symbolize the highest level of financial care. The financial advisors with this designation should represent his and her clients’ best interests and be unabashedly transparent by fully disclosing any and all potential conflicts of interest.

Your finances are your future, and who you work with matters.

So, now when you look to hire a financial advisor or investment manager you know to seek a financial professional who operates under the fiduciary standard of care. You know what it means, and you know why you shouldn’t settle for anything less.


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