fiduciary
A person or organization that acts on behalf of another, with a legal obligation to act in that person's best financial interest.
Example
“As a fiduciary, the financial advisor was legally required to recommend investments that benefited the client, not themselves.”
Memory Tip
FIDUC-iary — fiduc sounds like 'fidelity.' A fiduciary has fidelity (loyalty) to your best interests.
Why It Matters
The fiduciary standard is one of the most important distinctions in financial services. An advisor held to a fiduciary standard is legally required to put your interests first. One held only to a suitability standard must only recommend products that are suitable a much lower bar that allows recommending higher-fee products that benefit the advisor more than you.
Common Misconception
Many people assume any financial advisor calling themselves a financial planner or wealth manager is a fiduciary. Most are not. Broker-dealers insurance agents and many financial advisors operate under suitability standards. Only Registered Investment Advisors are legally required to act as fiduciaries at all times.
In Practice
When interviewing a financial advisor ask directly: are you a fiduciary 100% of the time? Some advisors switch between standards acting as a fiduciary when giving advice but as a broker when executing transactions. A true fiduciary is bound to the higher standard at all times and should be willing to put this in writing.
Etymology
From Latin 'fiducia' meaning 'trust, confidence' — someone trusted to act in your interest.
Common Misspellings
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