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Understanding the ins and outs of investing can be overwhelming, especially for those new to it. Should I invest in blue-chip stocks? How can I best diversify my portfolio? These questions may be best-directed at fiduciary financial advisors. 

A fiduciary is anyone who must act in the best interest of a client or customer. Attorneys, bankers, and company board members are all examples of fiduciaries. Because they’re legally required to maintain the best interests of their client, they offer a higher level of trust to those who work with them.

Let’s take a closer look at what makes a fiduciary, how the fiduciary duty differs from the suitability standard, and how to find a fiduciary you can trust with your money.

What is a fiduciary?

A fiduciary is a person or organization that has agreed to act on behalf of customers, clients, or shareholders, facing legal consequences if they fail to do so. 

A fiduciary is typically one who manages the assets of a client, although this isn’t always the case. A fiduciary can come in many forms, including an accountant or company board member. 

There are numerous types of financial advisors with different certifications, like Certified Public Accountant (CPA), Certified Financial Planner (CFP), and Financial Risk Manager (FRM), to name a few. It’s important to note that it’s generally up to the client to verify whether an advisor carries fiduciary status. For example, advisors with titles like “wealth advisor” or “financial advisor” might sound legitimate, but don’t necessarily mean they’re a fiduciary.

One of the easiest ways to verify whether a financial professional has fiduciary status is by working with a CFP,  a trade-industry designation that necessitates a “fiduciary duty” to their clients along with practical financial experience and ongoing certification requirements.

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Fiduciary duty vs. suitability standard

There are are two standards of care that apply to financial planners: the fiduciary duty and the suitability standard. They may seem similar,  but it’s important to know the difference.

A fiduciary duty is the legal obligation of one party to prioritize the interests of others. This relationship is between the principal (you, the client) and the fiduciary, such as a registered investment advisor (RIA). This is regulated by the SEC and is defined by the duties of loyalty and care.

Investment advisors have a fiduciary duty to their clients, which was established by the Investment Advisers Act of 1940. This means they must act under their clients’ best interests.

Fiduciary duties tend to fall under two main categories:

Duty of loyalty. This requires fiduciaries to prioritize the interests of their clients before their own, avoiding potential conflicts of interest that may impact their ability to make good decisions.

Duty of care. This holds fiduciaries to a high standard of care, requiring that they make decisions prudently and in good faith. This duty can either be implicitly stated or spelled out in a contract, but it essentially requires professionals to exercise good judgment and make informed decisions.

Breaches of fiduciary …read more

Source:: Business Insider


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