What Is A Fiduciary?

Dessert-lovers – and more specifically chocolate fanatics – usually have no concept of the meaning of the words “rich” or “too rich.” They know the tastes of sweet, spicy, sour, and bitter but struggle to describe “rich”…unless they’re allowed to do so with an eye roll.

Another word that gets passed out without the full meaning being understood, perhaps, is the term “fiduciary.”

At Blueprint Financial Advisors, we make it a point to inform our clients of our fiduciary status. Sometimes people we work with even proactively ask about it. Still, we’ve found that the term isn’t always fully understood, so we’d like to take a moment to provide some clarity.

The Fiduciary Standard: Talking the Talk

First, here’s a technical definition:

A fiduciary is entrusted with the authority to act on behalf of another person or entity and has a legal and ethical obligation to act in their best interests.

Let’s break that definition down from back to front:

• Best interests: Acting in someone’s best interests means making recommendations that may not benefit the advisor directly — and that’s okay. In a fiduciary relationship, the priority is to provide advice that aligns with the client’s optimal outcome, regardless of how the advisor is compensated. Sometimes, that even means turning away a potential client if the advisor reasonably believes their services won’t offer meaningful value.
• Ethical obligation: Ethics involve a moral duty to do what’s right, with the client’s best interest as the primary goal. The assumption is that the pursuit of an ethical outcome is universally understood and reliable, but even someone with only an ounce of cynicism running through their blood can see there’s grey area when it comes to ethics.
• Legal obligation: Unlike ethics, legal obligations are more clearly defined and enforceable. This legal obligation helps hold advisors accountable and gives clients additional protection. Different standards apply in different settings, but the key is transparency. Clients should always understand the role and responsibilities of the advisor they’re working with.

Being a Fiduciary: Walking The Walk

If a fiduciary is someone with an obligation to act in the client’s best interest, what are some of the markers that clients can look for to assure themselves that their financial advisor is acting exclusively in their best interest?

1. Is the advisor having robust conversations with you about your financial situation and aspirations long before you sign any documents or move any money? The purpose of these conversations is to gain a shared vision of your financial future. The advisor should be demonstrating that he or she wants to learn about your needs, priorities, and goals. You should sense that the advisor is asking clarifying questions to ensure he or she understands what peace of mind looks like to you, as well as what will make you confident that you’re on the right track to reach your financial goals and experience the lifestyle you desire. You should hear them asking thoughtful, clarifying questions and speaking about creating a customized financial plan — not relying on a cookie-cutter or one-size-fits-all solution.
2. Is the advisor willing to set clear expectations around how they’ll respond to your inquiries – and then, do they follow through? Since fiduciaries are required to act in a client’s best interest, this requires responsiveness on the part of the advisor. Clients should ask the advisor what to expect in terms of follow-ups. For example, “How quickly will I get a call back when I leave a voicemail?” Or “What’s the standard response time if I email you with a question?” Knowing what to expect – and then comparing what’s promised to what’s delivered – helps you gauge how attentive and accountable your advisor truly is.
3. Once you’ve started working with an advisor, how frequently are they meeting with you and sharing updates? Fiduciaries should be continually monitoring your financial plan and proactively reaching out to share portfolio updates, perspective on the markets, and suggestions for adjusting your plan if your financial situation changes. If you can’t remember the last time you heard from your advisor – especially if you’ve attempted to reach out – it could be a warning sign.
4. How is the advisor compensated? Understanding how your advisor is paid can help reveal potential conflicts of interest. Simply asking the question can be enlightening: If you ask about this and the advisor brushes it off without giving an answer, that’s a very different experience than if the advisor if transparent and upfront. For example, if an advisor receives a one-time upfront commission for a transaction, it could open the door for a potential conflict of interest, especially if the advisor is able to recommend products that pay a higher commission than another comparable option. While every compensation model has potential conflicts, what matters most is the advisor’s transparency and commitment to aligning their advice with your goals.

Some advisors pursue additional credentials or certifications, or they choose to affiliate with professional organizations within the industry. These affiliations can sometimes carry additional requirements for how the advisor engages with clients. It’s worth asking your advisor about any such credentials or associations — and how they influence their approach. That said, keep in mind that not having additional affiliations shouldn’t be a single determining factor since the fiduciary standard will apply regardless. This is another example of when simply asking the question can be informative: Does the advisor share their thought processes openly or dodge your question?

Do You Need a Fiduciary?

As with most things in life, it’s not black and white: Not all bus drivers are kind, not every plumber is good at their job, a nurse can also be a good teacher, not all individuals acting as fiduciaries are good, and not all non-fiduciaries are bad. Titles and designations alone don’t guarantee quality.

Clients simply need to do their best to understand which is which and how it might impact their situation. You should never hesitate to ask direct, even probing questions, and good advisors – whether fiduciaries or not – should be more than happy to address these questions head on.

A good rule of thumb to consider whether you as a client should be seeking a fiduciary is the type of need you have. For instance, if you are looking for an advocate to help set an overall financial goal and sort through a host of product choices to support that goal, then a fiduciary relationship may be particularly valuable. On the other hand, if your goal is a specific product meant to solve for a specific need, such as the highest-earning savings instrument, then having a fiduciary may be less important.

Many advisors operate in both fiduciary and broker-dealer capacities, depending on the service or product they’re offering. The key is that they clearly disclose which role they’re in at any given time — and explain why — so that you, the client, can make informed decisions.

Being a fiduciary is not the end-all-be-all but can play an important role in helping clients pursue their financial goals. At Blueprint Financial Advisors, we operate under the fiduciary standard, but more importantly, we’re committed to helping individuals in our community understand their options, regardless of whether they choose a fiduciary or non-fiduciary, whether it’s our firm or another.