What does it mean to act as a fiduciary?

In the simplest definition, it means to do what is in the client’s best interest and to place those interests above your own.

This is a good thing, right?  When you go to your doctor, you want him to act in your best interest.  To make recommendations that would provide the utmost care. The same should be true for investment advisors.  Now you may be thinking that all investment advisors are required to act as a fiduciary?  But they are not.

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Because not all advisors are required to act as a fiduciary, ask your advisor, if he acting a fiduciary?

Ask about conflicts of interest such as whether she or her firm is receiving compensation from the investment managers that she is recommending?

Is his firm providing an incentive or reward to recommend one investment option over another.

Basically, you want to know if your advisor is benefiting in some way that he has not disclosed to you.  I don’t mean disclosed in a lengthy document, but instead y had a conversation with you about what compensation they are receiving and if this is impacting in any way by what he is recommending.

To act as a fiduciary, you must also provide a duty of care.  This means only making recommendations where you have knowledge and skill.  So staying on top of education is key as well as partnering with other experts when there are situations beyond the advisor’s knowledge base.

So which investment advisors are required to act as a fiduciary? Only Registered Investment advisors, or those advisors working under a registered investment advisor (see my upcoming video on the types of investment advisors.)  Also, some certifying organizations for designations such as Certified Financial Planner and Accredited investment Fiduciary also require advisors to act as a fiduciary in order to maintain these designations.