Fiduciary. Feh-doo-shee-air-ee. Say it with us. We know, it sounds pretty jargon-y, and we’re supposed to be financial know-how without the BS finance terms to get in the way. But this is one you really should know and understand. So take the next three minutes to level up your financial vocabulary.
What exactly is a fiduciary?
A fiduciary is a person or company that has the power to act on behalf of someone else. If Jane Austen or Oscar Wilde are your #jam, think about wards — young people whose guardians take care of them and control their money/estates. It all started back in the 1700s in England when there weren’t any laws in place to protect young people’s money from old people’s greed. Okay, it’s a bit more complicated than that, but essentially, there was a tipping point when the British courts decided that if you control someone’s money on their behalf, you have a responsibility to to do right by them.
When you’re talking about modern (American) financial advisors, a fiduciary is someone that is required (by law) to act in the best interest of their client. In theory, this means that a fiduciary can’t upsell you on things that aren’t actually beneficial for you. They are supposed to avoid conflicts of interest. And they are supposed to provide “good” advice.
Here’s where that gets tricky.
Can anyone be a fiduciary?
Sort of. Anyone can act as a fiduciary, but there are several laws in place that restrict individuals and businesses that are designated as certain types of fiduciaries. If a financial advisor claims to be a fiduciary, they are probably talking about ERISA laws with lots of numbers and letters that we won’t get into here.
These designations are important. But the most important thing for you to understand is not the nuances about fiduciary law, but that fiduciary is more than just the hot word of the day with every new robo-advisor and investing app that pops up in your #sponsored Instagram feed.
Wait. You can call yourself a professional and not act in my best interest? That’s f*ed.
But, why should I care?
Valid. And here’s the quick and easy answer: because who gives you financial advice matters.
We take our fiduciary responsibility seriously, but we can’t guarantee everyone does. We always suggest you do your research about any company handling your money, even us. What you do with your money now determines how quickly that “not rich yet” becomes a thing of the past.
If someone isn’t a Fiduciary, what the hell are they?
A final point of clarification. The other standard the financial services industry goes by, is called the Suitability Standard. If a financial professional doesn’t follow the fiduciary standard, it’s likely they follow the suitability standard – which states that if two products (or investment solutions) are both right for a client, the financial professional can recommend the one that pays them more money (or a higher commission).
At the end of the day, it has to do with how a financial professional gets paid. Everyone needs to make a living, and we’re not trying to fault anyone for making a buck. At Stash Wealth, we believe the fiduciary standard is the way to go. That said, you have to make your own decisions about whether you’d rather pay your financial professional out of pocket and know for a fact that they are providing you with conflict-free advice.