Individuals place a lot of trust in the professionals who support their investment and financial planning needs. Because of this trust, it is important to know if your financial professionals operate as fiduciaries. What does this mean? Fiduciary advisors have a legal and ethical requirement to put a client's best interest before their own. Note that all advisors with Financial Planning Solutions, LLC, operate as fiduciaries.
The word "fiduciary" derives from early Roman times. When someone needed a solid pledge to transfer property, a "fiducia" was created to bind the contract. The Fiducia (the Latin word for "trust") communicates good faith, reliability, and confidence. The original "fiduciary rule" was introduced in 1975 by the U.S. Department of Labor. The intent of the rule is to protect retirement investors from conflicts of interest - and to require individuals who oversee retirement plans (e.g., plan sponsors, financial advisors, etc.) to act in the investors' best interest.
The fiduciary rule has been the subject of many legislative debates and revisions since then, but the guiding principles have stood the test of time. Today this fiduciary duty is regulated by the Securities and Exchange Commission (SEC) and based on the Investment Advisors Act of 1940. The rule follows two key tenets:
Duty of care. The advisor must understand the clients' financial objectives and circumstances, and apply skill, diligence, and prudence in support of their needs and objectives.
Loyalty. The advisor must avoid any conflicts of interest and always prioritize the clients' best interests.
Fiduciary advisors must embrace a formal, legal process to always pursue clients' best interests, and invest their energy and time in the financial objectives that matter most to their clients.
So, how do you find out if your financial professional is a fiduciary advisor? You may ask your advisor, or view your financial professional's credentials on the SEC website: https://adviserinfo.sec.gov/
For example, anyone who is a Certified Financial Planner ® (CFP®) professional is obligated to act as a fiduciary advisor. Under the CFP Board's Code of Ethics and Standards of Conduct, a CFP® makes a commitment to CFP Board, as part of their certification, to act as a fiduciary and to act in the best interests of the client at all times when providing financial advice.
All advisors with Financial Planning Solutions, LLC, operate as fiduciaries. In fact, Lyman, Rick, Andrew, and I are all Certified Financial Planner® (CFP®) professionals. However, there are many other financial professionals - often referred to as "wealth advisors" or "financial planners" - who may not technically function in a fiduciary capacity. If you are not currently working with FPS, we would be happy to talk with you. In the meantime, check to see if your financial professionals work as a fiduciary – or not. Questions? We are here to help.
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Janet Rhodes Friedman, CFP®, CDFA®, MBA
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.