What is Fiduciary Standard?


fiduciary standardOne of the most important yet most overlooked qualities you should look for in a financial advisor is whether or not they are a fiduciary. What is a fiduciary or the fiduciary standard?

What Is Fiduciary Standard?

In the simplest form, a fiduciary is required to put your needs in front of his own. This may come as a shock to many, but there are a great number of financial advisors that are not fiduciaries, meaning they are under no obligation to place your needs in front of their own.

Many of the larger financial advisor firms have what is known as the suitability standard. While the advisor does not need to place your needs ahead of his, he is required to place you in investments that are suitable for you.

Make certain you understand the definition of fiduciary. They are only acting in your best interest. They are not guaranteeing you will be out-performing the market or other investors. No on can guarantee these things.

Also realize that there is no test to become a fiduciary. Advisors who are fiduciaries get the title by their actions, not by taking a test. Certified Financial Planners for instance, went through a long process to become a fiduciary. There are various ways of becoming a fiduciary, so be sure to inquire with the advisor as to how he earned the title.

Of course, just because an advisor is a fiduciary does not mean you can let your guard down knowing that everything is right with the world. Sometimes, advisors who are fiduciaries fail to act according to their standard. Even worse for the investor, proving that the advisor breached this commitment is very difficult in court.

This is not to say that all advisors that are fiduciaries act unethically. Many are great advisors and take their title as fiduciary seriously. But as with anything in life, there are no guarantees. Make it a point to do your research on an advisor and ask them about being a  fiduciary. You can learn a lot by how he answers the question.

3 thoughts on “What is Fiduciary Standard?”

  1. Thanks for this explanation Don. I have heard that word, fiduciary, but never gave it much thought. I’m glad you took the time to explain it in a short and sweet post. I might not have read the post otherwise.

  2. Good explanation there Don…..just a quick question. Do you have the type of questions one would ask to try and receive a straight answer?

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