Have you ever asked your financial advisor who they work for? Do they truly represent your best interests or those of the firm they work for? Are they acting on your behalf? Is their advice based on a fiduciary standard or a suitability standard? Do you know the difference?
These are very important questions to know the answers to before turning your hard-earned money over to someone to manage on your behalf. For many years, I have encouraged people who are looking for help managing their money to ask questions, lots of questions. One of the best questions you can ask is, “Do you act as a fiduciary?”
What is a Fiduciary Duty?
According to Nolo’s Plain-English Law Dictionary, a fiduciary duty is “a legal duty to act solely in another party’s interests.”1 Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals. Fiduciaries may not profit from their relationship with their principals unless they have the principal’s express, informed consent. They also have a duty to avoid any conflicts of interest between themselves and their principals or between their principals and the fiduciaries’ other clients.
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