Picking a Fiduciary? Make Sure You Consider These Factors

When picking a financial adviser with fiduciary responsibilities, it’s important to realize the implications of that choice. Fiduciary responsibility is a position of responsibility and trust.

Not All Financial Advisers Are Fiduciaries

It’s a mistake to assume that all financial advisers are fiduciaries in the formal sense of the word. Hopefully anyone that you entrust with investments and estate planning responsibilities will be ethical and honest. But not everyone you do business with has the rights and responsibilities associated with the role. While titles may differ, someone described as a financial adviser generally has fiduciary responsibility, but a financial broker may not. Unfortunately, recent attempts to clarify what role any given financial professional must legally adhere to have been complicated by different presidential administrations.

Fiduciaries Can Buy, Sell and Trade Without Your Express Approval

To allow an estate planner to do their job effectively without taking a lot of your time while managing your affairs, it may be necessary to entrust them with the authority to make securities trades without checking in with you each time. If an estate planner has this authority, they are, or should be, a fiduciary.  This means they have the highest legal responsibility to do transactions in a way that maximizes the benefit to you, regardless of whether it maximizes their profit.

While honesty is paramount in this kind of relationship, it goes beyond that. A fiduciary most also possess the competence to engage in the transactions that they engage in, or advise their clients to engage in.

How Can a Fiduciary Breach Your Trust?

A person acting in a fiduciary role may fail to act in your best interests in a number of ways. For example, they may engage in more transactions than are in your best interests because they make commissions on trades. They may misrepresent an investment either because they are eager to sell it or because they wish to downplay it in favor of a different investment.

Ask Yourself These Questions About a Fiduciary

  • Is the person you are entrusting with this role legally a fiduciary? That is, are they legally bound to act in your best interest?
  • Do you trust this person to act on your behalf?
  • Do they have a reputation for integrity and high ethical standards?
  • Is this person competent to engage in the transactions you are entrusting to them?

 

The fiduciary relationship is complex. Make sure you understand what your financial adviser or broker consider their role to be. Your Sacramento estate lawyer can help explain this with you.

 

Thanks to the Yee Law Group for their insight into estate planning and picking a fiduciary.