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What is a Fiduciary, and Why are They Like Dietitians?

 
 
 

We all want to work with people we trust, right? Especially when it comes to money. How do you know if your money is in good hands, and that you have a trusted partner in your corner when it comes to making important financial decisions? Enter: the fiduciary advisor.

Fiduciary Defined

Until recently, people often associated the word “fiduciary” with attorneys and trust arrangements. The term has now made its way into the financial advising world as the highest standard of care between an advisor and his/her clients. According to Investopedia, a fiduciary “requires being bound ethically to act in the other's best interests.”

The Boring Rules, Translated

In order to be a fiduciary, and adhere to the highest standard of care, an advisor must:

  1. Always put their clients’ best interests before their own interests and that of their business

    • Don’t screw over clients and sell them things they don’t need

  2. Act in good faith and provide all relevant facts to clients

    • Tell it to ‘em straight. Clients deserve to know all facts about their investments and financial plan

  3. Avoid conflicts of interest and disclose any potential conflicts of interest to clients

    • Is your advisor selling their own firm’s products to make a higher commission or in cahoots with other professionals? They shouldn’t be, but if they are, they need to tell you.

  4. Do their best to ensure their advice is accurate and thorough

    • No slackers here- Fiduciaries double check their work to give clients the highest quality advice.

  5. Avoid using a client’s assets to benefit themselves, such as by purchasing securities for their own account before buying them for a client

Shouldn’t Every Advisor be a Fiduciary?

I certainly think so! Currently, the majority of financial advisors in the U.S. are not fiduciaries. Instead of adhering to the fiduciary standard of care, they adhere to the suitability standard, and are often referred to as “brokers.” By comparison, Forbes explains, “The suitability standard requires that a broker make recommendations that are suitable based on a client’s personal situation, but the standard does not require the advice to be in the client’s best interest.” It’s a little confusing, so check out the video below for a great analogy:

 
 

Brokers are butchers selling products, while fiduciaries are dietitians looking after your health.

 
 

I’d recommend that you ask your advisor if he/she adheres to the fiduciary standard. A solid giveaway is if they are a CERTIFIED FINANCIAL PLANNER™ or if they charge “fee-only.” We, at Cove, always adhere to the fiduciary standard - it’s just the right thing to do.

Are you ready to start working with a fiduciary advisor? Reach out to me at Ben@coveplanning.com or schedule a free consultation call.

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Ben Smith is a Whitefish Bay, WI fee-only financial advisor and CERTIFIED FINANCIAL PLANNER™ (CFP®) Professional serving clients in the greater-Milwaukee, WI area as well as virtually across the country. Cove Financial Planning provides comprehensive financial planning and investment management services to individuals and families, regardless of location, with a focus on Socially Responsible Investing (SRI). Ben acts as a fiduciary for his clients. He does not sell financial products or take commissions. Simply put, Cove Planning sits on your side of the table, and always works in your best interest. Learn more how Cove Planning can help you Do Well While Doing Good!

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Ben Smith, and all rights are reserved. Read the full Disclaimer.

 
Ben SmithFiduciary, Fee-Only, CFP