There has been a lot of buzz around the financial reform laws that have been passed in the wake of the Great Recession. As a consumer, one of the biggest take away pieces to this reform is the focus on fiduciary responsibility. So what is a fiduciary and why should you care?
A fiduciary is way more than just a big word
Let’s start with some definitions, Fiduciary: “A person to whom property or power is entrusted for the benefit of another” or “A person legally appointed and authorized to hold assets in trust for another person.”
Some of you might be saying to yourself, “Andrew, don’t all the professional service providers I work with have to abide by this fiduciary standard?” The unfortunate answer is NO! In fact, being a fiduciary is such a huge responsibility that many professionals try to go out of their way to avoid this type of liability. You see, if a professional is held to the fiduciary standard and he or she violates that responsibility by doing something that is not in your best interest, they could be held legally liable.
So is your traditional stock broker a fiduciary? No, he is a salesman. Traditionally a stock broker is not responsible for bad advice and for selling products that are not suitable for their clients. On the other hand, your investment advisor who is registered with the state or SEC as an investment advisor representative is a fiduciary!
So why should you care? Well working with someone who is your fiduciary gives you an extra level of peace of mind. You can expect that this person will be giving you the same advice that they would give to their mom. If they don’t give you the advice that is most suitable for you – you have legal recourse to be able to recover any losses you sustain from implementing their recommendations.
As a consumer you should make a point of asking your professional service providers if they have a fiduciary responsibility for the recommendations they make to you. If they answer no, you need to make a serious decision about whether or not you want to continue a relationship with them.