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What Is A Fiduciary And Why Is It Important?

What Is A Fiduciary And Why Is It Important?

September 13, 2018
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Working and earning money is simply a part of life. However, as a consumer, what is the best way to go about enjoying, saving, growing, and protecting your hard-earned money?

If you are like most individuals and families in the United States, you either 1) do not have the immediate knowledge to answer that question or 2) you are so busy that to implement what you need to, you’d rather hire a professional to do it for you. In both cases, it makes sense to work with a professional to provide expert advice, so that you can make the most informed decision.

In both situations described above, the consumer eventually finds themselves in a vulnerable position where they are entrusting their hard-earned life savings and financial goals to someone else. We wouldn’t expect such a thing to be easy for anyone. However, what if we told you that there was someone out there in the financial planning and advisory world that will, first and foremost, always put your interests ahead of their own?

That person is what we like to call a fiduciary financial advisor!

What Is A Fiduciary?

In simple terms, a fiduciary is someone that acts in the best interest of another. Instead of putting their own interests first, a fiduciary will put the other person's interests in front of their own. Within the context of financial advice, a fiduciary financial advisor will only give advice or recommendations to a client if it is in the complete and total best interest of the client, at all times.

Another way to think about it is from the perspective of conflicts of interests. A fiduciary financial advisor will never give a recommendation to a client based on how much compensation they will receive. That is clearly not putting the client’s interest ahead of their own.

Example Of Fiduciary vs. Non-Fiduciary

To provide applicable context of how working with a fiduciary may look, consider the following scenario. Imagine that you’ve been a great saver and are at a point where you now have excess cash that you are unsure what to do with.

If you were to seek financial advice from someone that is a non-fiduciary financial advisor, they may suggest that you take that excess cash and buy a mutual fund. When you purchase that mutual fund, you will not pay the non-fiduciary financial advisor directly, but they will be compensated from the mutual fund company in the form of commissions on the sale. Buying a mutual fund is not a bad thing, however, in this case, the mutual fund ended up having high fees and poor performance. In addition, he/she did not ask the right questions to find out that you actually needed that money in three years for a down payment toward a new home. Because the non-fiduciary financial advisor was only thinking about the up-front commissions that he/she received, your interests were not taken into consideration.

On the other hand, take this same scenario of excess cash, and let’s see what the fiduciary financial advisor may recommend to you. They may ask some more specific questions as to certain goals you may have or what ideas you have for that excess cash. Instead of recommending a mutual fund, the fiduciary financial advisor finds out that it is actually in your best interest to keep the money in cash in a high-yielding three-year CD account, so that you can use it for the down payment on your dream home. In this case, the fiduciary financial advisor is not receiving any compensation for this recommendation, but he/she does it because it is in the best interest of their client.

Why Is It Important?

Working with a fiduciary is important for many reasons. As explained above, a fiduciary acts in the best interest of their clients. While this should be expected when working with any type of professional, this is just not the case in financial services. Under current laws, your financial advisor or broker-dealer “can receive monetary rewards and other perks for recommending certain investment products, even if those products aren’t in your best interest.” (1) Isn’t that scary to think about, especially when considering what we are talking about here—your hard-earned life savings and financial goals?

In other industries, the fiduciary standard is never a question. For attorneys, they cannot take money from the opposing counsel to give you the wrong legal advice. For doctors and nurses, they cannot recommend drugs to patients while also getting paid by those same drug companies. The financial services industry, as a whole, is not yet enmeshed into a fiduciary standard (which is scary), but we are certainly making strides in the right direction. For now, if you find someone that holds themself out to be a fiduciary financial advisor, you can be confident that you are in good hands.

How Do I Find A Fiduciary Financial Advisor?

An easy way to make sure that you are working with a fiduciary financial advisor is to request to see their Form ADV Part II. In addition, you can also ask the advisor if they have signed a Fiduciary Oath.

When you hand over your hard-earned life savings to a professional to help you achieve your goals, you want the assurance that your interests will be put first. In order to make sure that happens, always work with a fiduciary financial advisor. At ATL Global Advisors, we always work with our clients in that capacity. To learn more and engage with a fiduciary, do not hesitate to email me at gary.lutrick@atl-ga.net, call 404-303-9994, or click here to book your free introductory meeting.

About Gary

Gary Lutrick, MBA, RFC is a financial advisor and partner at ATL Global Advisors, an independent financial services firm serving transportation and logistics employees in the greater Atlanta area. Along with nearly 30 years of industry experience, Gary holds an MBA in Finance and a Registered Financial Consultant (RFC) certification. He focuses on helping his clients plan for retirement, manage risk, and define financial objectives that integrate their family values. Learn more by connecting with Gary on LinkedIn.

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(1) https://www.financial-planning.com/articles/elizabeth-warren-worried-about-broker-conflicts-the-sec-isnt