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What's a Fiduciary and Why Work with One?

| September 15, 2022

Maybe you’ve heard the chatter in the financial media about fiduciaries and what to expect if you hire one.  A prospective client asked me recently if I was a fiduciary, because he heard the term on a radio show.  I was able to tell him yes I am, but what exactly does that mean and should you work with one?

Let’s start with the definition and one clear one comes from the CFP Board.  It’s probably important I disclose that my wife Judi and I both hold CFP® certifications.  That doesn’t mean that we are more suited for any particular investor than a financial advisor, stock broker, or any other financial professional.  It does mean that we must strictly adhere to CFP Board rules regarding ethics and standards and here’s what the CFP Board Code of Ethics says about a fiduciary:

“At all times, when providing Financial Advice to a Client, a CFP® professional must act as a fiduciary, and therefore, act in the best interests of the Client.”

This definition is contained under, Duties Owed to Clients, which also says a CFP® professional must, “Place the interests of the Client above the interests of the CFP® professional and the CFP® Professional’s Firm.”

The Securities and Exchange Commission adopted and implemented new rules back in June of 2019 to increase standards for financial professionals.  It used to be that financial professionals could recommend investments that were “suitable,” or appropriate for investors.  The new regulation says financial professionals must recommend investments that are in the client’s best interest.  The rule is derived from the Department of Labor’s definition of a fiduciary.  Not all financial professionals can claim the title of fiduciary, but the SEC has determined that it’s best for the industry to move to a fiduciary standard.  That’s a good thing, in my opinion.

Now, the second question: should you work with one?  That all depends.  Every investor has unique circumstances.  You might be looking for someone to conduct trades, create a full-blown financial plan or for someone in-between those two poles.  This much is certain, every investor deserves transparency, truth and integrity from the people who they hire to manage their money.  What matters is that individuals have the ability to make informed decisions, based on an honest assessment of their investment choices.  None of this is to say that you will always get the best results when you work with a fiduciary, but it is useful to know what the term means and where to find one.