The word 'fiduciary' is one you'll come across often when looking into financial matters, investment management, and retirement planning, but many don't know what a fiduciary is, what they do, or how they help you with your money.
What is a Fiduciary?
The word comes from the Latin "fiducia," meaning trust. It means an individual or institution that you trust to manage your property and/or your money.
In other words, fiduciaries look after assets that are being held in trust for a beneficiary. They are expected to administer and invest those assets prudently and with the best interests of the beneficiary(s) concerned. It's a very important sounding word for a very important purpose. It can also be used to refer to anyone with that kind of responsibility, such as the person who handles investments for a charity, and you might hear the phrase "fiduciary responsibility" in this context.
Sometimes it is used in a non-financial context. A Healthcare Surrogate or a person named to make medical decisions on your behalf or Legal Guardian who is responsible for a child’s general well-being are also called Fiduciaries.
What do Fiduciaries Oversee?
In the retirement and investment management role, fiduciaries oversee your assets. Your financial advisor has a fiduciary duty if you trust them to buy and sell investments for you so you don't have to. This means they are required to act in your interest rather than to maximize their commission.
Most often, though, fiduciaries oversee trusts. A fiduciary will handle the trust and ensure that everything is done to the highest standards. They may hold title to the property or assets, to ensure they have full authority to do whatever is needed.
Having a fiduciary can protect you and your heirs from issues that might come from management, and when overseeing your estate, a fiduciary will make sure that your family is taken care of, especially if your children are still minors.
Fiduciaries will use fiduciary accounts, which include escrow accounts and Uniform Transfers to Minors Act accounts. These are insured and handled in specific ways and may have rules about how the money can be deposited, withdrawn, and used.
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.
While it is legally acceptable for fiduciaries to get some commission on top of the fee, the best charge a fee based on your portfolio size and don’t earn any other fees, commissions or kickback. Anything like that increases the chance of a conflict of interest. While it might appear that commissions motivate advisors to buy only the best investments, fiduciaries need to focus on other matters.
For example, a commission-based financial advisor might buy based on short-term gain, especially if they are close to retirement, and thus take more risks with your money. A fiduciary in charge of a trust for a seven-year-old knows that the kid is going to need a solid amount of money in about ten years for college, and will easily resist that temptation if there is no "quick money" in it for them.
Caldwell Trust provides the highest quality fiduciary services for you and your estate. We can do a full review of your existing arrangements, especially if you have concerns, and will make sure that your assets are being managed in line with your objectives and goals. In the role of a fiduciary, we will oversee all aspects of ensuring you and your family are taken care of.
To find out how we can help you by serving as a fiduciary or with estate planning audits, contact Caldwell Trust today.