Have you heard the term “fiduciary” before? It’s may not be a term you use every day, but it’s extremely important to understand when it comes to your financial situation.
If you have a financial advisor managing your assets, you’ll want them acting as your fiduciary. Here’s why.
What Is a Fiduciary?
Fiduciary means “involving trust,” and someone acting as a fiduciary has undertaken the responsibility to provide the highest standard of service for their clients. That means fiduciaries eliminate conflicts of interests and put the needs of their clients above everything else.
Trained, certified, and educated professionals act as fiduciaries for average individuals in a number of fields, including finance. They have highly specialized knowledge that isn’t common across a general population, and as such they can make the right, informed decision about complicated issues where other people may not have the knowledge to do so successfully.
That’s why it’s important your financial advisor acts as your fiduciary. A professional who takes a fiduciary oath swears to act in your best interests at all times. Having a financial advisor act as your fiduciary ensures that your needs are put first.
Why It’s Important that Professionals Work as Fiduciaries
If you’re worried about a financial advisor being motivated to recommend certain products because they make a commission on them, then having a fiduciary can erase that worry. Since they are committed to your financial well-being, they will only recommend products they truly believe will work in your favor.
This also means they won’t try to push you to buy certain financial products that you don’t need or don’t make sense for your situation.
Essentially, your fiduciary will be biased toward helping you. If you ask for their opinion on two different products, they should be able to explain the benefits and drawbacks of each, and then explain their reasoning for picking one over the other in your particular case.
Having this trust also makes it easier to form a relationship with your advisor. If you ever need to consult with them on your financial goals, you can do so without the worry that they’re only out for themselves.
Their number-one goal should always be to build and preserve your wealth to the best of their ability.
Finding a Fiduciary You Can Trust
As you want your relationship with your fiduciary to be based off of trust and respect, it’s important that you find an advisor willing to answer all of your questions. They should be transparent about their practices and the products that they sell (if any).
Do your due diligence in researching advisors, and be aware of the different ways advisors get paid. A fee-only structure further ensures that advisors only get paid what you pay them — they don’t earn commissions off what their clients do.
However, if an advisor is fee-based, then they can charge a flat fee or get paid via commission. Ask your advisor about their fee structure and make sure it’s going to benefit you. There shouldn’t be any hidden fees.
And don’t be afraid to ask an advisor, “Are you a fiduciary?” or “Would you be willing to sign a fiduciary oath before working with me?” If they refuse to act as your fiduciary, it may be in your best interest to look for a different financial professional to have on your side.
Fiduciaries take their oaths extremely seriously and won’t jeopardize your finances for their own gain. Being able to trust your advisor with your assets will go a long way toward giving you peace of mind when it comes to your portfolio.