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What is a Fiduciary?

What is a Fiduciary?

July 18, 2019
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When looking for a financial advisor, one of the first pieces of advice that you will receive is to find someone who is a fiduciary. That is great advice but, what actually is a fiduciary and why is it better if your advisor is one?

“A fiduciary is a person or organization that acts on behalf of another person or persons to manage assets. Essentially, a fiduciary owes to that other entity the duties of good faith and trust. The highest legal duty of one party to another, being a fiduciary requires being bound ethically to act in the other's best interests.”[1]

When you understand what a fiduciary is and how they are required to act, it becomes clearer that finding an advisor who is a fiduciary is important. A fiduciary will think about your needs first and do what is best for you. That is essential when it comes to the person who is helping you to manage your money. You want that person to always be thinking about your needs and what is best for you.

The word “fiduciary” has been around for a long time but, many in the mainstream did not take much notice until 2015 when President Obama proposed an overhaul of the Department of Labor Rules requiring advisors to act in the best interest of their clients; to act as fiduciaries. Ultimately, the rule was vacated by the U.S. Fifth Circuit Court of Appeals, effectively halting the implementation of the new rule.[2]

Even though the DOL Rule is essentially dead, the conversation continues about advisors acting as fiduciaries, which it should. The SEC adopted new rules in 2019 that includes a new Regulation Best Interest [3] While this new rule does increase transparency and offer some new protections for investors, it falls short of the full fiduciary standard which, in my opinion, is best for investors.

If you work with fiduciary advisors, they are obligated to act in your best interest rather than their own. For example, if your advisor has the option to invest in two similar products and one would give the advisor a larger commission while the other would offer you a lower cost, the advisor is obligated to select the investment that is best for you; the one with a lower cost.

Advisors who are Registered Investment Advisors (RIAs) are bound to the Fiduciary Standard and must act in a client’s best interest. This is a much higher standard than the Suitability Rule that is held by broker-dealers. According to the Brokerage Rule, an investment recommendation need only be suitable for a client. A broker who recommends a product that is suitable for a client even if that product comes at a higher cost to the clients, is still legally operating within the bounds of the Suitability Rule.[4]

In addition to RIAs, Certified Financial Planners (CFP®) are also required to act as fiduciaries. The updated Code and Standards for a CFP® “requires a CFP® professional to act in the best interests of the client at all times when providing financial advice.”[5]

At Pinnacle Wealth Management we have always believed that the Fiduciary Standard is the best standard. As an RIA firm that was founded by a CFP®, it just makes sense to us. If you would like to learn more about what it means to be a fiduciary and how we act as fiduciaries in our practice, please contact us and we would be happy to discuss it further with you.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Any named entity, Pinnacle Wealth Management, and LPL Financial are not affiliated.

[1] Fiduciary

[2] Everything You Need to Know About the DOL Fiduciary Rule


[4] Fiduciary

[5] CFP Board Code and Standards

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