What is a fiduciary?

The term “fiduciary” is something to be familiar with if you are planning to work with a financial advisor. A fiduciary is a financial professional who takes an oath to act in the best interest of the client. In any advisory relationship, trust and good faith are extremely important. However, this trust could put the advisor in the position to recommend investments or strategies that benefit the advisor at the expense of the client. Due to this, advisors who take an fiduciary oath are required to:

  • Act with undivided loyalty and utmost good faith
  • Provide full and fair disclosure of all material facts, defined as those which “a reasonable investor would consider to be important”
  • Not mislead clients
  • Avoid conflicts of interest (such as when the advisor profits more if a client uses one investment instead of another or trades frequently) and disclose any potential conflicts of interest
  • Never use a client’s assets for the advisor’s own benefit or the benefit of other clients

Why is this important?

You will not grow your wealth as efficiently if an advisor isn’t giving you recommendations that are in your best interest. One common area where a fiduciary should always note a conflict of interest is when deciding whether to pay down debt faster or invest more in your retirement accounts. Most financial advisors are compensated based on the amount of assets that they manage. This creates a conflict of interest because the advisor’s fee will be higher if you decide to save more in retirement accounts. This does not mean that saving in retirement accounts isn’t a good decision — but your advisor should always let you know when they will profit more from one decision compared to another.

How do I know if my advisor is a fiduciary?

First things first — ask! Most advisors that are fiduciaries will prominently display that in their recommendations and actions. The Investment Advisors Act of 1940 imposes a fiduciary standard that requires all advisors to put clients’ interests above their own. However, brokers that give investment advice are only subject to the Suitability Standard. This standard is far less stringent than the fiduciary standard and can lead to advice that isn’t truly in your best interest.

It is also possible for an investment advisor to call themselves a fiduciary without acting like one. Take the time to determine if your advisor has your best interests in mind if you are worried that they are not truly a fiduciary. Think about whether the advisor will benefit from a specific recommendation they give you. Ask the advisor if they receive any compensation for the investments they recommend to you. If they do receive compensation from the investments they recommend, ask if there are any options that are lower cost. Lastly, ask the advisor to give you a written statement that they are acting as a fiduciary.

How we act as a fiduciary

Being a fiduciary is a core part of our values. At Halyard Financial, recommendations are followed up with a disclosure of how it will affect our advisory fees and why we think it is justified if we choose the strategy that leads to higher fees for us. We only invest in passive index funds that provide no financial incentive to us. There are no financial products that we sell. We do not receive referral fees from attorneys or insurance agents that we recommend that you work with. Our main goal is to grow your wealth in the most efficient way possible — even if that is contrary to growing your investment portfolio on which we get paid.

As always, reach out to us if you have any questions or want to discuss anything mentioned here further.

Written by Garrett Gould

Garrett Gould is a remote financial planner who specializes in long-term tax management. He is the co-owner of Halyard Financial and advises individuals, families, and small business owners throughout the nation. Garrett is an Enrolled Agent with the IRS who has passed all three of the CFA exams and has been creating financial plans for several years. Garrett is located on the Upper West Side in New York City.

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