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What is a Fiduciary?

13 Mar 2024

What is a Fiduciary?

In the labyrinthine world of finance, one term that often comes up is “fiduciary.” But what does it really mean, and why should it matter to you? This is something that many investors overlook when selecting a Wealth Advisor. Let’s dive into the nitty-gritty of fiduciary duty and unravel its significance, especially in the realm of wealth management.

Defining the Fiduciary

At its core, a fiduciary is an individual or entity entrusted with the responsibility of acting in the best interests of another party. This relationship is characterized by a high level of trust, good faith, and a commitment to prioritize the well-being of the beneficiary (aka: you, the client). In the financial world, a fiduciary takes on the role of a trusted advisor, legally obligated to put the client’s interests ahead of their own. This duty ensures that financial decisions and recommendations are made with utmost transparency, integrity, and a singular focus on achieving the client’s financial objectives.

Wealth Management and the Fiduciary vs Suitable Standard

When it comes to managing your wealth, the distinction between a fiduciary advisor and an advisor that operates under the suitable standard is crucial. A fiduciary is bound to act in your best interest, period. On the flip side, there are other advisors out there that are only bound by the suitable standard. This suitable standard is exactly how it sounds, it merely requires recommendations that are only suitable based on your financial situation, without necessarily being the most optimal choice for you. In our opinion, your personal and financial life are too valuable to be left to this standard.

It is incredibly important to discern the motivations behind someone’s financial recommendations to you.  Choosing professionals who prioritize your financial well-being rather than their own bottom line will help you avoid dealing with those who adhere to the suitable standard without the fiduciary commitment.

The Importance of Choosing a Fiduciary

A fiduciary operates under a legal and ethical obligation to prioritize your best interests, navigating the complex landscape of wealth management with transparency and unwavering integrity. This commitment ensures that every financial decision, recommendation, and strategy is crafted with your unique goals in mind. Opting for a fiduciary is more than a simply a choice; it’s a proactive step towards securing not just monetary gains but a partnership built on trust, safeguarding your financial well-being over the long haul. In a world where financial decisions carry significant consequences, the importance of a fiduciary cannot be overstated — it’s the key to a resilient and tailored approach to wealth management. The fiduciary duty establishes a relationship built on trust, transparency, and an unwavering commitment to your best interests.

But how can you tell if you’re working with a fiduciary? Here are a few questions to consider when interviewing Wealth Management firms:

  1. Do they explicitly state their fiduciary duty in writing?
    • Transparency is paramount and a Certified Financial Professional™, like all of BentOak Capital’s Wealth Advisors are, is obligated to inform you, in writing, of their duty to you.
  2. How do they disclose fees and potential conflicts of interest? What do they do when a conflict of interest arises?
    • A Fiduciary will disclose these items to you without you even having to ask. Someone operating under the suitable standard may try and hide it in the fine print and consider that “good enough.
  3. Are they transparent about their investment strategy and decision-making process?
    • A Fiduciary will work in a collaborative process with you, building your plan and investment strategy around you and your needs and keep you in the loop every step of the way. Someone who only must make their recommendations under the “suitable” standard may try to mash and force fit you into a product that you may not actually need.
  4. Do they prioritize your financial well-being over potential commissions or bonuses?
    • A Fiduciary is legally obligated to place your financial well-being over their own. They may still benefit from making a recommendation, but they will make this known to you and you can trust that this recommendation is truly in your best interest because of their fiduciary duty. Someone who operates under the suitable standard may leave you wondering if a recommendation is better for you or for them.

Carl Richards illustrates this concept beautifully here -> Fiduciary Standard Sketch. You will see that the fiduciary standard client-advisor relationship revolves solely around the client. Conversely, the suitability standard does not. This type of relationship often centers around financial products and commissions.

In the intricate world of finance, where decisions today can have profound implications for your financial future, the distinction between a fiduciary and a non-fiduciary advisor is paramount. Selecting a wealth advisor who operates under a fiduciary duty is not merely a prudent choice; it’s a proactive step towards safeguarding your financial interests. By explicitly prioritizing your well-being over their own, fiduciaries uphold a standard of trust, transparency, and integrity that forms the bedrock of a resilient client-advisor relationship. As you navigate the landscape of wealth management, remember to scrutinize the fiduciary commitment of your advisor through probing questions and discerning observations. Upholding the fiduciary standard isn’t just a legal obligation; it’s a testament to the advisor’s unwavering dedication to your financial prosperity. In a realm where trust is currency and transparency is king, embracing the fiduciary principle is the cornerstone of a partnership built on mutual respect, transparency, and a shared commitment to your financial well-being.

 


Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial.

 

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More about the author: AJ Bunn