Episode 8: What is a Fiduciary?

Thank you for joining me for Episode 8 of my Money Wisdom Question Series, where I film answers to common financial and retirement investment questions in 2 minutes or less. Today I’m going to answer the question, “What is a Fiduciary?” There seems to be some confusion out there over what a fiduciary is. Some financial advisors and firms say, “Oh, that’s not important.” Others say, “You’ve got to be a fiduciary or you (as the public) have to deal with a fiduciary.” Let’s break this down a little bit. There are two standards in our industry:

  1. Suitability Standard
  2. Fiduciary Standard
 Suitability Standard:

One standard is a suitability standard. That means a stockbroker, or an insurance agent is required to act and sell you a product that is suitable for you. This is a lower standard than fiduciary.  

Fiduciary Standard:

Fiduciary is a higher standard than the suitability standard, which means from a legal standpoint the person that you’re dealing with has to act in your best interest. That person has to act as what’s called a fiduciary, or caretaker, of your money. If somebody is a CERTIFIED FINANCIAL PLANNER like I am, we have a special CERTIFIED FINANCIAL PLANNER definition of fiduciary. There is also a separate legal definition of fiduciary. Johnson Brunetti and each of our advisors has a fiduciary responsibility as a Registered Investment Advisor (RIA) with the Securities and Exchange Commission (SEC).

Conclusion:

For most people, they should be dealing with an advisor or a registered investment advisor firm that has to act as a fiduciary. That doesn’t mean that there are bad people or that you need to be careful of everybody who works in the world of suitability, like stockbrokers. They’re not all trying to rip you off. Some people will say that, but it’s not the case at all. Some are really good people that work for stock brokerage firms that work on the suitability standard.   I just think, in my opinion, you’re better off – safer, if you will – working with a fiduciary; somebody that has to act legally in your best interest.

Thanks for joining me and I hope you found this information helpful!

P.S. If you enjoyed this topic and you want to hear more, you’ll love this podcast episode I recorded where I talk about the very same subject.

P.P.S. Feel free to submit questions here for a chance to have them answered!