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What’s the Value of Working with a Fiduciary Investment Advisor?

by Caldwell Trust

Building a nest egg for your retirement years is important, and one of the best ways to do that is through wise investment management. When doing so, however, it’s important to partner with someone you can trust to help you make the right decisions. While you may expect all financial advisors to have your best interest in mind, there is only one type that is legally responsible to do so. They are called fiduciary investment advisors.

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What is a Fiduciary?

A fiduciary is a person or legal entity that has the power and responsibility of acting for another in situations requiring complete trust, good faith and honesty. The most common example is a trustee of a trust. They offer an outside perspective without the personal or emotional connections that may be associated with your decisions. And they’re also authorized to make decisions on your behalf based on their knowledge and area of expertise.


Fiduciary vs. Non-Fiduciary

When it comes to financial advisors, it’s essential to know the distinction between fiduciaries and non-fiduciaries. Non-fiduciary advisors are regulated by the Financial Industry Regulatory Authority (FINRA), and they’re responsible for meeting the “suitability” standard of conduct. This means that their recommendations need to be “suitable” for your financial profile, but they are not required by law to act in your best interest. Instead, they may be motivated to steer you towards investments that generate a higher commission.


A fiduciary investment advisor works in a different manner. They have a legal duty to fully understand the client’s financial position, goals, and needs to offer sound recommendations that benefit the client. The Department of Labor even established a fiduciary rule, which will be updated next year, that requires advisors to put their client’s needs first as it relates to managing investment accounts.


Benefits of Partnering with a Fiduciary Investment Advisor






Below are three main benefits of working with a fiduciary investment advisor.


1. Highest standard of care

Fiduciaries are required by the Securities and Exchange Commission (SEC) to act in their client’s best interests. Called the duty of care, this is a fiduciary responsibility that requires advisors to exercise the utmost care in making business decisions on your behalf. They must put agreements and disclosures in writing, avoid or mitigate conflicts of interest, minimize investment expenses, and use an investment policy statement that expresses assumptions about objectives, risk and performance.


2. Fee-only or commission-based compensation

Most fiduciary advisors are fee-only, and either charge a flat, hourly rate, on a per- service basis or as a percentage of the assets they manage. These charges are independent of the investments they recommend, whereas commission-based advisors are paid from the sale of investments. In some cases, the motivation to earn higher commissions can be a conflict of interest for the advisor.


3. Peace of mind

Most important, you will have peace of mind knowing your financial interests are protected and in the best hands. Since they are legally required to adhere to certain standards, you can rest assured that your advisor will put you and your financial needs first.


Simply put, a fiduciary investment advisor works in your best interests to ensure you’re making the best financial decisions. Every investor does not require a fiduciary, but it’s best to consider working with one to receive investment advice and guidance that you can trust.


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