What is a Fiduciary?

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A fiduciary is the person you will need to manage your finances when you, yourself, can’t. That being said, it truly is a thankless job as the fiduciary is only responsible for funds that don’t even belong to him/her. However, a fiduciary is the most important person for you in making those key financial decisions. Why? Because if you choose a fiduciary who isn’t ethical, trustworthy or competent, your money runs the risk of either disappearing or diminishing.

The “Fiduciary Standard”

Established with the Investment Advisers Act of 1940, the fiduciary standard mandates and ensures that whoever holds the role of fiduciary complies and satisfies all expectations of that role. In short, a fiduciary must act in accordance with the client’s “best interests” in mind, providing financial advice free of conflict. That being said, fiduciaries must then disclose all conflicts of interest as well, striving for complete satisfaction.

Be aware, however, that not all financial experts should be held to the fiduciary standard.

What Is the “Suitability Standard”?

Whereas the fiduciary standard focuses on the best interests of the client with recommendations, the suitability standard requires a professional to only recommend those investments that he or she deems suitable for the client. In short, there’s some sense of authority applied to the expert here, something that typically a fiduciary isn’t required or allowed to have, with some flexibility to focus more on the overall picture and ultimate goal versus the client’s specific needs and interests.

Examples of experts regulated by the suitability standard include:

  • Broker-Dealers
  • Insurance Agents
  • Financial Advisors

In 2016, the Fiduciary Standard Was Expanded

The client does matter, especially when it involves the client’s income and assets. Such is the case for IRAs and 401(k) plans. As of that year, the Department of Labor made it a requirement for certain advisors falling into that particular category of advisement to always focus solely on the needs, expectations, wishes and requests of the client regardless of what would be the right course of action.

In the case of estate planning for the deceased, this is crucial as many IRAs and 401(k) plans require management that would be otherwise neglected.

If Seeking the Service of a Fiduciary….

It’s important to choose an expert you can trust. It could be a family member, or even an expert the court may appoint. An attorney may also serve as one provided the credentials exist, but ultimately it is up to you as the owner of assets and funds to select the appropriate individual. If you do have more questions about fiduciaries and how to select one, simply consult a lawyer or estate planner (or both) on the proper course of action.

Written by AskTheLawyers.com on behalf of Charles Triay

Author: Charles Triay

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