There is a laundry list of financial terms that often get thrown around left and right. While financial experts have had these buzzwords and their corresponding definitions drilled into their heads since their early days at school and throughout their professional careers, some of these terms are less known among non-financial people.
One of those terms that you likely have heard, but have maybe heard varying definitions or breakdowns of what it means is “fiduciary.”
Today, we’re going to talk about what the term means, some of the key responsibilities a fiduciary has, and how to find the right one for you.
Let’s get started!
What is a Fiduciary?
A fiduciary can take a few different forms. First, they can be an individual person. The other form they can take is an entity.
A fiduciary, in the most simple terms, is legally obligated to place their client’s interests ahead of their own. Whereas a non-fiduciary financial advisor might receive a sales commission for selling a particular investment regardless of whether or not it is the best option for you.
A fiduciary must also disclose their fees, how they’re compensated, as well as any other information related to what may be deemed a potential conflict of interest. The idea here is that fiduciaries should be totally transparent about anything that might influence an individual’s decision to use their services. Fiduciaries are “fee-only”. That means they can charge only for their consultation and expertise, say in the form of an hourly or flat fee—or, but most commonly, a percentage fee is based on assets under management.
Meanwhile, a non-fiduciary doesn’t necessarily disclose their fees so transparently, and they won’t likely share the commissions they received for selling certain investments, even if they aren’t in your best interest.
A fiduciary also won’t sell any product or participate in revenue sharing agreements. Trust Point is always looking out for the best interest of our clients and our focus is strictly on finding the best solution for the client.
The five main responsibilities of a fiduciary are:
Put the Client’s Best Interest First
As mentioned already, a fiduciary must always have the best interests of their client at the forefront of their advice and decision-making process. This is considered the golden rule of fiduciary duty and a fiduciary must never be found to be negligent, self-dealing, or deceitful in their practice. Because fiduciaries are not selling products or receive sales commissions for selling investments, it makes it easier for fiduciaries to stick to this responsibility.
Act With Prudence (Skill, Diligence, and Good Judgment)
Because the client is dependent on the advice and guidance of the fiduciary — and because this advice involves their finances — it’s of paramount importance that the fiduciary is competent and knowledgeable. So, a fiduciary should be well-informed in the best investment and financial strategies, which means they should be staying up-to-date with the latest industry trends. Clients should have high expectations that their fiduciary can provide them with the best advice, so acting with prudence and demonstrating good judgment is a must for fiduciaries.
Do Not Mislead Clients, Provide Conscious, Full, and Fair Disclosure of All Important Facts
It’s important for fiduciaries to understand that while the financial industry may make perfect sense to them, for their clients, it can be a more complicated environment to operate in. Because of this, it is on the fiduciary to ensure that the client is well-informed on why certain actions should be taken with their finances and why those recommendations are being made. Fiduciaries should prioritize establishing a fiduciary relationship of trust early on with their clients, and then use that trust to make appropriate recommendations for the client that will help them succeed financially and meet their goals. Anything less than this is not meeting the fiduciary responsibility.
Avoid Conflicts of Interest
It’s on the fiduciary to ensure that they are void of any conflicts of interest when it comes to their duty. Fiduciaries should avoid conflicts of interest whenever possible. Because trust is so important, if the client questions their fiduciary’s loyalty, the fiduciary relationship won’t work.
Fully Disclose and Fairly Manage
The fiduciary should remove any impediments to their objectivity. Fees should be 100% disclosed and 100% transparent. At Trust Point, we are willing to put our fiduciary standards in writing. Anyone who asserts to uphold a fiduciary standard should be willing to do the same. It’s as simple as that.
Finding the Right Fiduciary For You
When it comes to finding the perfect fiduciary to meet your needs, you may have to do a few meet and greets first. While every fiduciary should be fully capable of working with you and helping you reach your financial goals, feeling comfortable working with them is very important as well. When you set up meetings with potential fiduciaries, you’re able to get a feel for their communication style and whether or not they’d be a good fit for you.
Why Trust Point is the Perfect Fiduciary For You
We have a simple philosophy here at Trust Point. We firmly believe that every action we take, every suggestion made, and the consultation we provide should be in the best interest of our clients.
At Trust Point, we do not manufacture or sell financial products (annuities, insurance, proprietary mutual funds, etc.) but provide tailored wealth-related advice that meets the highest standards of objectivity, ethics, and transparency.
With a longstanding history of providing exceptional fiduciary services to clients, you can trust in Trust Point to help you establish realistic plans to achieve your personal goals.
To get started click here, or contact one of our experienced professionals at 800-658-9474. We look forward to hearing from you!