Fiduciary is a common term in the world of business and finance. The term applies to someone who manages either property or money on behalf of another person.
A fiduciary is required under penalty of law to manage the property and money in the other person’s best interests – not the fiduciary’s. But what does that mean, and what does a fiduciary do? Read on to learn more!
Two Primary Duties of Fiduciaries
Fiduciaries have two primary duties when working with clients.
#1 Duty of Care
The duty of care describes how fiduciaries must make informed decisions in the best interests of their clients after reviewing all available information carefully.
Financial advisors who are fiduciaries might fulfill their duty of care by researching comprehensive information on a client’s finances and personal circumstances before offering recommendations or making plans.
A company director who is a fiduciary might carry out their duty of care by consulting with industry experts to make informed decisions on best practices for the company.
#2 Duty of Loyalty
The duty of loyalty dictates that fiduciaries cannot have undisclosed personal or economic conflicts of interest. Accordingly, fiduciaries cannot use their role for personal gain or to further their own interests.
Financial advisors who are fiduciaries might fulfill their duty of loyalty by disclosing any commissions they receive from their recommendations to clients.
Types of Fiduciaries
There are many types of fiduciary professionals besides those who work as financial advisors. Some other positions with fiduciary duties include the following.
#1 Estate Executor
Estate executors are those who manage the estate and affairs of a person after they pass. Executors are responsible for handling the deceased’s taxes and finances while acting as fiduciaries to the beneficiaries.
Fiduciary estate executors must distribute the estate according to the deceased’s wishes and cannot act out of self-interest during this process.
#2 Lawyer
Hired lawyers have fiduciary duties to their clients. Therefore, they must disclose potential conflicts of interest while focusing on their client’s best interests.
This responsibility is imperative when a client works with an attorney who develops documents related to estate planning, such as a will or power of attorney.
Fiduciary duties apply to all lawyers, including those with solo practices and those working for Fortune 500 companies.
#3 Real Estate Agents
Real estate agents are also considered fiduciaries in that they must disclose concerns about the value of a property they sell.
In some states, real estate agents can represent the buyer and the seller during a transaction. This situation doesn’t negate their duties as fiduciaries, and they must carefully manage the interests of both clients. Agents must inform their clients and have them sign an outlined agreement.
#4 Trust Trustees
A trust is a legal entity that describes what property, money, or other assets you want to transfer to someone else when you pass away. The person in charge of the trust is called a trustee. The trustee has a fiduciary duty to manage the trust in the best interests of the person who will inherit the assets.
This means a trustee cannot use the assets from a trust for themselves. If they do, they will be subject to legal consequences.
#5 Corporation Directors
Directors of corporations have a fiduciary duty to run the company in a way that puts the company’s and its shareholders’ financial interests above their own.
To fulfill their role as fiduciaries, a director of a corporation must disclose any personal conflicts of interest that might interfere with their ability to perform their role adequately.
Working with a Fiduciary Financial Advisor
Financial advisors who are fiduciaries are required to act in the best interests of their clients, which includes offering the lowest-cost solutions to fit their client’s needs.
It’s important to remember that not all financial advisors are fiduciaries. While all financial advisors should technically act in the best interests of their clients, those who are fiduciaries are bound by stricter legal rules.
How can you tell if a financial advisor is a fiduciary? First, you can simply ask them if they are.
Another way to know whether a financial advisor is a fiduciary is to look at their certifications. For example, Certified Financial Planners (CFPs) are fiduciaries.
Fiduciary Financial Advisors at Good Life
At Good Life, we take our fiduciary* duties seriously, always working in the best interests of any client, no matter their background or income.
Are you interested in working with our team? Contact us today and book a free discovery call to learn more about our services and how we can work together.
*In advisory relationships