Fiduciaries in Financial Planning: What They Are and Why You Need One
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Last updated 03/15/2024 by
SuperMoney TeamSummary:
A fiduciary is a financial professional who is legally and ethically obligated to act in the best interest of their clients. By working with a fiduciary, you can have confidence that your long-term financial goals are being prioritized. To find a fiduciary, you can search for Certified Financial Planners (CFPs), registered investment advisors (RIAs), or members of the National Association of Personal Financial Advisors (NAPFA).
When it comes to managing your money, it’s important to work with professionals who have your best interests at heart. One such professional is a fiduciary. But what exactly is a fiduciary, and why is it important to have one on your team?
In this article, we’ll explore the concept of a fiduciary, its legal and ethical obligations, and why it’s crucial to work with a fiduciary when planning your finances. We’ll also provide tips for finding a fiduciary and additional resources for learning more about this topic.
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What is a fiduciary?
A fiduciary is a person or organization that has a legal and ethical obligation to act in the best interests of another party. In the context of financial planning, a fiduciary is a professional who is required to act in the best interests of their clients when making investment or financial planning recommendations. This means that the fiduciary must put their client’s needs ahead of their own, and avoid any conflicts of interest that could compromise the client’s financial goals.
Examples of financial professionals who may act as fiduciaries include Certified Financial Planners (CFPs), registered investment advisors (RIAs), and some lawyers and accountants. These professionals are held to a higher standard of conduct than other financial advisors who are not fiduciaries.
In essence, a fiduciary is someone you can trust to give you objective, unbiased advice about your finances. They have a legal and ethical obligation to act in your best interest, and must always put your needs ahead of their own. This makes them an essential partner for anyone who wants to create a solid financial plan and achieve their long-term goals.
What is another word for fiduciary?
Another word for fiduciary is “trustee.” Both terms refer to a person or organization that is legally and ethically obligated to act in the best interest of their clients or beneficiaries.
Alternatively, if your biggest concern is investing your funds for regular returns, you may want to speak with an investment advisor instead.
Why is a fiduciary important?
Working with a fiduciary is important for several reasons:
- They must act in your best interest. As mentioned earlier, a fiduciary has a legal and ethical obligation to act in your best interest. This means they must recommend investments or financial strategies that are in line with your goals, risk tolerance, and financial situation. They cannot recommend investments or strategies that benefit them more than you, even if it means less money for them.
- They must disclose any conflicts of interest. Fiduciaries must be transparent about any potential conflicts of interest that could influence their recommendations. For example, if a fiduciary receives a commission or other compensation for recommending a particular investment, they must disclose that to their clients. This helps ensure that clients can make informed decisions about their finances and avoid investments that may not be in their best interest.
- They are held to a high standard of conduct. Fiduciaries are held to a higher standard of conduct than other financial professionals. They must act with integrity, honesty, and diligence and avoid any actions that could harm their clients. This means they are accountable for their actions and can be held legally and financially responsible if they breach their fiduciary duties.
How to find a fiduciary
Finding a fiduciary can seem like a daunting task, but it doesn’t have to be. Here are some tips for finding a fiduciary:
- Look for Certified Financial Planners (CFPs). Certified Financial Planners are required to act as fiduciaries when working with clients. You can search for CFPs in your area on the Financial Planning Association’s website.
- Look for registered investment advisors (RIAs). Registered investment advisors are also held to a fiduciary standard. You can search for RIAs in your area on the Securities and Exchange Commission’s website.
- Check the National Association of Personal Financial Advisors (NAPFA) website. NAPFA is a professional organization for fee-only financial planners who are held to a fiduciary standard. You can search for NAPFA advisors in your area on their website.
- Ask potential advisors if they act as fiduciaries. When meeting with potential financial advisors, ask them directly if they act as fiduciaries. If they do, they should be able to explain their legal and ethical obligations to you.
When looking for a fiduciary, it’s important to do your research and find an advisor who understands your unique financial situation and goals. By following the tips outlined above, you can find a fiduciary who you feel comfortable working with and who can help you achieve your financial goals.
Key Takeaways
- A fiduciary is a financial professional who is legally and ethically obligated to act in the best interest of their clients.
- Working with a fiduciary can help you make informed decisions about your finances.
- Certified Financial Planners, registered investment advisors, and members of the National Association of Personal Financial Advisors are all examples of fiduciaries.
- When looking for a fiduciary, it’s important to find an advisor who understands your unique financial situation and goals.
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