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What is a fiduciary (and why should you care)?

When was the last time you visited the doctor? Perhaps it was an annual check-up or physical. Whenever that last visit was, you likely were not wondering whether your physician had your best interests at heart when you asked questions about your health. Unfortunately, the same can’t always be said when you visit a fiscal physician, or a financial advisor. Your financial advisor, unlike your family doctor, doesn’t always have to put you first. How can this be?

What is Fiduciary?

Much has been written in financial articles regarding the June 5, 2019 SEC vote on the controversial Regulation Best Interest rule. The rule centers around whether financial firms must always place client’s interests ahead of their own. Or can they legally place their own firm’s best interest ahead of their client, in certain circumstances? For your edification, here are articles from ThinkAdvisor and Washington Post and Forbes that go into detail on the new ruling from the SEC.

The purpose of this post is not to hash out what the SEC just did with their Best Interest ruling (use the links above to read about that).

Instead, we are asking the question, what is a fiduciary? And more practically, why should you care?

Establishing Trust

More than any other profession, financial planners are in the “know, like, trust” business. Without trust, there’s no opportunity to provide advice, guidance, or to speak meaningfully into the lives of client-families. As a result, financial planners use messaging and words like “seeking your best interest” and “trusted partner”, among many others, to describe how they look out for their clients. The idea is to plant the seeds of trust using words that hopefully blossom into a trusting, loyal client relationship.

Words are just words

But here’s the problem for consumers, words are just words. Words don’t mean anything without the substance of actions to back them up. This includes the word “fiduciary”. So what does fiduciary mean? In the financial advice context, acting as a fiduciary means that your financial planner is legally and morally obligated to provide their clients with financial advice that is best for the client, at all times! Even if that advice is to the detriment of the financial planner.

Think of your family physician. When you visit your doctor, your expectation is that your physician is credentialed, experienced, listens genuinely and sincerely to you, and prescribes treatment and solutions that are best for you, the patient. This is the spirit of the Hippocratic Oath.

When it comes to family financial decisions, wouldn’t you want guidance from a Hippocratic Oath-style financial planner? Of course you would! Who wants a family physician acting with a big pharma agenda?

How do you know?

Unfortunately, not every financial professional is going to act as a financial fiduciary, no matter what words they use to describe themselves.

So how do you know who is who and which is which? You educate yourself with key questions and you learn to speak fiduciary!

Here are short, easy questions you can use to understand whether you are talking to a fiduciary financial planner.

  1. Do you and your firm act as fiduciaries for your clients? If yes, will you put that in writing?
  2. Are you licensed to receive compensation from the sale of financial products? If yes, what products?
  3. Are you a CERTIFIED FINANCIAL PLANNER™ professional?

Here are the answers you want to hear, respectively: 1) Yes and yes 2) No 3) Yes.

Armed with these questions and answers, you can have confidence and clarity you are speaking with a fiduciary financial planner.

Please let me know if you have other questions related to financial planners and being a fiduciary. I’d love to help be your thinking partner on this topic.

– Kaleb Paddock, CFP®

You can learn more about Ten Talents and Kaleb, a financial planner based in Parker, CO, here.

Kaleb can be reached at (303) 961-4397 or kaleb@tentalentsfp.com.

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