What is a Fiduciary?
In the context of financial planning, a fiduciary is a professional who is legally and morally bound to provide financial advice that is in the best interest of their clients at all times. This means putting the client ahead of themselves - even if the advice is to the detriment of the financial planner!
The Fiduciary Duty
Fiduciaries are bound by two main duties:
1. Duty of Care: This requires fiduciaries to make informed decisions by thoroughly understanding your financial situation and goals. They must use their expertise to provide the best possible advice and strategies for your unique circumstances.
2. Duty of Loyalty: Fiduciaries must avoid conflicts of interest and always act in your best interest. They are required to disclose any potential conflicts and ensure that their recommendations are solely for your benefit.
Working with a Fiduciary sounds pretty good right? But did you know? Not all financial advisors are held to a fiduciary duty, and some are held to it at some times, but not all times. Let’s dig deeper.
Being a fiduciary is often tied to the financial advisor’s fee model, because their fee-model points to how they are compensated and accordingly, if they can sell products, generate commissions, and what regulatory body and guidelines they are bound to.
In 2019, the SEC passed controversial regulation called the Regulation Best Interest standard. Effectively, it centered around whether advisors needed to always place client’s interest ahead of their own. The outcome was that it elevated the standard to which advisors who earned commissions were obligated to in their dealings with their clients, but did not impose a Fiduciary standard at all times on these advisors.
Boiled down, an advisor who is able to generate any form of commission (whether it be 100% commission-based insurance salespeople or a hybrid professional who gives advice AND is able to sell products with commissions) likely won’t be serving in a Fiduciary-at-all-times role.
Why Should Consumers Care If Their Financial Advisor is a Fiduciary?
I’ve had 5 orthopedic surgeries thus far in my life. Surgery is a big deal; it requires a lot of Trust in a person – their credentials, experience, values, and the big kicker….their legal and moral commitments to you as a patient.
While I won’t pretend financial planning is near as physically intrusive as surgery, the process of comprehensive financial planning is metaphorically deep, oftentimes a bit new or uncomfortable, and requires a deep level of Trust in a person.
This is why it’s so crucial (and should be the bare minimum) to back up the level of Trust not only with credentials and experience and the like – but also with a legal obligation to serve as a Fiduciary-at-all-times to clients.
How to Identify a Fiduciary Financial Advisor
To ensure you are working with a fiduciary, you can ask these questions:
1) Credentials: “Are you a CERTIFIED FINANCIAL PLANNERTM professional?”
2) Compensation: “Do you have the ability to receive compensation from any sources other than the direct fees I would pay you as a client?”
3) Ask Directly: “Are you a fiduciary?” If yes, take it 1 step further by asking:
- “Are you a fiduciary-at-all-times?”
- "Will you put it in writing?"
At True Riches Financial Planning, we serve our clients as a Fiduciary-at-all-times, operate under a Fee-Only model (the only way we get paid is from the transparent, flat fees we agree to with our clients), and put our fiduciary oath in writing in our client agreements. We believe this is a necessary first step towards establishing an ongoing relationship pillared on trust.
You can learn more about True Riches Financial Planning by visiting our website, services, transparent pricing, or book a complimentary 45-minute Discovery Call using the button below.
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About the Author
Zack Gutches, CFP®, CPA is a Christian Financial Advisor who provides ongoing fee-only financial planning, investment management, and tax preparation services in Aurora, CO locally and nationwide virtually. True Riches Financial Planning serves clients as a fiduciary at all times and never earns a commission of any kind.
