Lately, we’ve seen quite a few commercials with actors claiming that their firm should be trusted as they “follow a fiduciary standard.” But what exactly does that mean?
What Does Fiduciary Mean?
A fiduciary is a professional entrusted to manage advisory assets or wealth while putting the client's best interests first at all times. Financial advisors, when acting in a fiduciary capacity for their advisory clients, must disclose any conflict, or potential conflict, to their clients before and during the advisory engagement. Fiduciaries will also adopt a code of ethics and fully disclose how they are compensated.
Main Duties Of A Fiduciary
As fiduciaries have legal and ethical responsibilities to act in the best interests of a third party, generally, this requires the following responsibilities:
- Loyalty: A fiduciary must not act in and/or allow any conflicts of interest and self-dealing; the fiduciary must act in the best interest of the beneficiary/principal.
- Care: A fiduciary must use reasonable skill, diligence, and care in order to make informed and prudent decisions.
- Good faith: A fiduciary must act honestly, in transparency, and in good faith.
- Confidentiality: A fiduciary must keep sensitive information private and confidential; a fiduciary must disclose sensitive information only if required by law and/or authorized by the beneficiary.
- Act within authority: A fiduciary may only act within the authority set forth by law, contract, or governing documents.
- Full disclosure: A fiduciary must give accurate, complete, and timely information related to the beneficiary's interests.
- Account: A fiduciary must keep records/ accounts of all financial transactions and decisions so as to provide a concise and clear account.
- Manage assets prudently: A fiduciary has the responsibility to protect, invest, and manage assets to maintain and grow the wealth.
Fiduciary Standard vs. Suitability Standard?
Not all “financial advisors” are obligated to act in a fiduciary capacity despite the fact that they carry themselves that way in the public eye. The reality is that anyone can call themselves a financial advisor with no actual credentials. This is referred to as the Suitability Standard, often comprised of large broker dealer firms and insurance salesman who are paid commissions on their investment products.
Is A Fiduciary Financial Advisor Worth It?
Yes, a fiduciary financial advisor is worth it for unbiased, transparent, and client-focused advice. They have a legal obligation to put your interests first, they typically work on a fee-only basis to avoid conflict, and they can offer comprehensive planning across your invest, tax, and estate needs.
Menninger & Associates operates under the Fiduciary Standard with advisory clients, acting in the client’s best interest 100% of the time. We are compensated for our advice under a fully disclosed fee only structure, we cannot charge or accept commissions, and will not agree to third party reimbursements.
