The word 'fiduciary' is one you'll come across often when looking into financial matters, investment management, and retirement planning. However, many don't know what a fiduciary is, what they do, or how they help you with your money. If you are unsure of what a fiduciary is and what they do, keep reading to learn more.
What is a Fiduciary?
The word fiduciary comes from the Latin fiducia, meaning trust. A fiduciary is a person or institution entrusted to manage money, property, or assets on someone else’s behalf.
In practice, fiduciaries often oversee assets held in trust for a beneficiary. They are expected to act with care and good judgment, follow the terms of the trust or legal documents, and make decisions based on what is best for the beneficiary, not what benefits the fiduciary.
A fiduciary relationship generally includes these core responsibilities:
- Act in the beneficiary’s best interest and put their needs first
- Avoid conflicts of interest, including compensation structures that could influence decisions
- Manage and administer assets prudently, including investing responsibly and keeping accurate records
- Follow legal requirements and the governing documents, such as a trust agreement or court appointment
While the term is most commonly used in financial and estate planning settings, it can also apply in non-financial roles. For example, a healthcare surrogate making medical decisions or a legal guardian responsible for a child’s well-being may also be considered a fiduciary.
What Do Fiduciaries Oversee?
In investing, fiduciaries may handle:
- Investment decisions
- Portfolio monitoring
- Risk management
More often, fiduciaries oversee trusts and estates, including:
- Managing trust assets
- Making distributions
- Handling taxes and filings
- Maintaining records
They may also manage fiduciary accounts, such as:
- Escrow
- UTMA accounts
- Estate accounts
How Are Fiduciaries Paid?
One very important thing: Fiduciaries are not paid a commission. If they were, it would be much harder for them to maintain their focus and continue to support only the best interests of the beneficiary.
A true fiduciary typically earns a transparent fee based on assets under management or a flat administrative fee. This structure reduces the likelihood of conflicts of interest.
In contrast, commission-based advisors may earn compensation based on the financial products they sell.
While commissions are not inherently improper, they can create incentives that may not fully align with a beneficiary’s long-term interests.
For example:
- A commission-based advisor may be incentivized to prioritize short-term performance.
- A fiduciary overseeing a trust for a minor beneficiary must focus on long-term preservation and growth.
The difference lies in the legal obligation to act solely in the beneficiary’s best interest.
Choosing a fiduciary is an important decision. The right support can reduce risk, prevent conflicts, and ensure your trust or estate is managed consistently with your intentions.
Caldwell Trust provides independent fiduciary services to help families and beneficiaries navigate administration with clarity and care. If you’d like to review your current arrangements or discuss serving as trustee, contact Caldwell Trust to schedule a confidential conversation.
