In financial services there’s confusion around what a “fiduciary” is.
I’ll explain what a fiduciary is here without all the jargon. The definition was first placed into law a few years after the Great Depression. The government codified laws to guard against another financial crisis.
The SEC highlights the duty of care and the duty of loyalty. The loyalty part means that the adviser should not put his interest ahead of yours, and to disclose any conflicts of interest.
The SEC doesn’t say that there cannot be conflicts of interest but that they should be disclosed so the consumer can make the decision of whether to follow the advice even though there may be a conflict of interest.
It sounds intimidating the way the government puts it, but here’s an example from another profession. If you had a wart growing on your foot, you may make an appointment with your primary care doctor.
The doctor may be able to effectively treat the wart, but she may tell you to go see the foot doctor (podiatrist) who specializes in treating your issue. Similarly, there are things that I don’t do as advisor or things that you would benefit from having the help of another professional. When those things come up I’ll refer clients to other professionals.
The duty of care part means you always serve the best interest of the client based on the client’s objectives. “The application of the duty of care, however, may vary based on the scope of the client relationship.”
In all reality, the topic of what a fiduciary is hinges around how an advisor is paid. When you understand how an advisor is paid, it may aid you in understanding the type of investing philosophy, advice the advisor offers and what type of investors the advisor is accustomed to working with. This will vary from advisor to advisor. It’s important to be paired with an advisor that matches your investing and planning preferences.
To me it comes down to the Golden Rule, “Treat others how you would want to treated.” I believe everyone deserves to work with an advisor who looks out of their best interest. Our pledge to our clients: To always treat them as we would want to be treated.
If you’d like to speak about this topic or ask a question just reply to this email or call our office at 864.641.7955. I’d love speak with you!
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