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I know, fiduciary is a jargon laden word that only people in the financial services industry care about.  That’s the problem with jargon, it usually only has significant meaning to people inside an industry.  I call this inside baseball.

It’s probably useful to have a definition for fiduciary before we go any further.  A fiduciary in the financial services sense of the word must work in the client’s best interest and not the advisor’s best interest.

You would think there would never even be a little discussion about this.  If you did, you would be wrong.  There is a raging discussion in the financial services business about whether we should have a fiduciary standard with everyone that provides financial advice and products to clients or just a subset of those who do.

I know that if I’m working with a financial advisor there is only one answer to this hypothetical and ridiculous question.  I want anyone I work with be it a lawyer, accountant, financial advisor or car salesman to work in my best interest.  I bet you do also.

So, what’s the big deal here?  It comes down to liability.  If you’re only a registered representative, you don’t have a fiduciary standard with your clients.  Does that mean you can take advantage of your clients?  Of course not.  It does mean you have certain responsibilities that you must fulfill.

Doesn’t this sound like we’re splitting hairs here?  In one sense yes, but in a legal sense there is wide difference between the two.

If I’m working in the capacity of a registered representative and selling you a product where commission is earned, I have to disclose the risks that are involved.  I have to make sure that I’m aware of your financial situation and I have to make sure that my suggestion fits in with your financial profile.  I don’t have to work in your best interest.  According to the law disclosing and knowing your financial goals are enough.

On the other hand, if I’m working in the capacity of an investment advisor, I would not be earning a commission on any products or investments we decided to use.  I would likely be paid a fee as a percent of the assets you invested with me.  My legal responsibility to you would be much different.  I would legally have to decide and make sure that I’m working in your best interest.  Just understanding what your goals are and disclosing the risks isn’t enough.  We have to go one step further.  We have to make sure that we are working in your best interests.  In other words this means it’s all about you.

I don’t know about you, but I want anyone I do business with to act towards me with a fiduciary interest.  I don’t care what it is. 

When you deal with your customers you have a conflict of interest.  When I deal with my customers I have a conflict of interest.  When I’m working as a fiduciary I have to recognize this and make sure my conflict is managed.  Although we would like to believe a registered rep is required to work in our best interest, it isn’t true.  And, that’s why you should care whether your advisor understands and believes in the responsibilities of being a fiduciary.  If all of us acted as a fiduciary, the world would be a better place.

Being a fiduciary is only one of my strategic things an advisor should help with.  We’ve put together a Periodic Table of Business Strategies you might be interested in.  The 56 different ideas might help you start thinking about what is important in your life.  To get this table, please click on the button below.

Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

This article is published for residents of the United States only.  Registered Representatives and Investment Adviser Representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed.  Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed.

Topics: jargon, for business owners, business relationship management, trust

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