Not all financial advisors are held to the same standard. Although many will tell you they know what is right for you, only fiduciary financial advisors are required to act in the best interests of their clients. In certain situations, this type of money manager may be your best option.
What is a Fiduciary?
A fiduciary financial advisor is a person or legal entity, which is granted the power and responsibility of acting for another person in situations that require total trust, good faith and honesty. Typically, the fiduciary is someone who is entrusted with the care of money or property.
The most common type of fiduciary is the trustee of a trust. In this relationship, a trustee may take on discretionary control of financial assets, like stocks and bonds. The fiduciary is given discretionary authority to buy and sell securities without needing express consent before making a trade.
As a result of being granted these powers, a fiduciary financial advisory is held to a higher standard than non-fiduciary advisors.
Types of Fiduciary Relationships
- Trustee/Beneficiary
- Principal/Agent
- Attorney/Client
- Guardian/Ward
A fiduciary could be an accountant, a financial advisor or an investment professional. Some financial advisors have the authority to act as fiduciaries but not all of them.
What is Fiduciary Duty?
Fiduciary duty is the legal obligation of one party to act in the best interests of another. This type of business arrangement aims to make a fiduciary’s advice more trustworthy.
A fiduciary is obligated to act with several ethical principles in mind:
- Undivided loyalty
- Utmost good faith
- Full and fair disclosure
- Honesty
- Avoidance of conflicts of interest
- Acting only for the benefit of the client
Do I need a Fiduciary Financial Advisor?
A fiduciary financial advisor is a professional who can make decisions in the best interests of another person who may lack financial literacy. These relationships are beneficial to a client, because they set out to avoid conflicts of interest.
Before taking the job, these types of advisors are required to disclose any potential conflicts of interest they may have. In a fiduciary relationship, financial professionals are ethically bound to act in the best interest of their client. As a result, the person entering a fiduciary relationship will have a better chance of receiving personal financial planning support that is perfect for their situation.
A fiduciary relationship is a unique type of partnership, which can provide important advantages in certain types of situations. If you have any questions how a fiduciary advisor could benefit you, contact a local accountant.
