What is a Fiduciary Financial Advisor?

What is a Fiduciary Financial Advisor?

While you may have seen the official definition of fiduciary as “a person or entity holding a legal or ethical relationship of trust, solely acting in the interests of a client.” The practical meaning may be less obvious. 

Working with a fiduciary financial advisor avoids conflicts of interest because they work on your behalf. All the facts that are material to the relationship require disclosure upfront. Also, when a potential conflict could interfere with the fiduciary financial advisor’s duty to you, they won’t enter into that relationship. In this role, a fiduciary operates essentially as if they are you, representing you, making decisions in your best interest. Laws surround the role and the relationship. 

The professional relationship between you and a fiduciary financial advisor means:

-You always know precisely how the fiduciary financial advisor receives their compensation

-Their first and foremost loyalty is to you

-A fiduciary financial advisor commits to behaving with diligence, without bias, honestly, and professionally

-You only pay fees for services, not commissions, and only reasonable amounts for the services provided

Fiduciary Financial Advisors sign and are held to fiduciary oaths, in addition to ethical oaths made as professional financial advisors. When you’re searching for a financial advisor, a fiduciary is transparent and lives up to the trust you place in them. Specifically, fiduciary financial advisors:

-Look for the best terms and prices for you on investments

Provide you with all relevant facts

Ensure advice is thorough, accurate and understood

You and Your Fiduciary Financial Advisor 

When you start working with a financial advisor, you give them access to your investments. And sometimes, they even have discretionary control over some of your assets so that they can make financial decisions for you without additional approval.

All investment advisors registered with the US Securities and Exchange Commission (SEC) or a state securities regulator act as fiduciaries. But stockbrokers, broker-dealers, and insurance agents are required only to fulfill what is called a suitability obligation. So, they have to provide suitable recommendations to you. But they are not required to put your interests before their own.

That’s why your advisor’s role as a fiduciary is so critical. You place an incredible amount of trust in this professional relationship, explicitly so that they make investment decisions in your best interests. Also, suppose your advisor recommends something, like insurance, for example. In that case, it’s essential to know it’s the right one for your situation.

Breaching fiduciary duty is when a fiduciary fails to honor this ethical obligation. If they make decisions that are not in your best interest, they could be held legally and financially responsible. If they were to benefit from the recommendations, fail to provide proper guidance, or act in a way that is otherwise not in your best interest, they are not upholding their oath. 

So, ultimately, you and your fiduciary advisor have a legal relationship based on trust. They advise you or take the actions for you that are best for your financial situation, without any conflict of interest. If a financial professional isn’t a fiduciary and knowingly sells you low-performance, high-fee investments, you may not have any legal avenues for righting the wrongs.

Contact us at Green Star Advisors for professional advice from a Fiduciary Financial Advisor.