What’s a Fiduciary? In this short video clip from the FinStream Live Show on March 24, 2025, Don Trone, father of the fiduciary, explains what a fiduciary is.
A fiduciary is a person or entity legally obligated to act in the best interests of another party, often managing their financial affairs or assets. This role involves a high standard of care, requiring the fiduciary to prioritize the client’s or beneficiary’s interests above their own, avoid conflicts of interest, and act with honesty, transparency, and diligence.
Key Aspects of a Fiduciary:
- Duty of Loyalty: A fiduciary must put the client’s interests first, avoiding self-dealing or personal gain at the client’s expense.
- Duty of Care: They must make informed, prudent decisions, often with the skill expected of someone in their position.
- Duty of Good Faith: Fiduciaries must act honestly and disclose relevant information, including potential conflicts.
- Legal Accountability: Breaching fiduciary duty can lead to lawsuits, penalties, or loss of professional licenses.
Common Examples:
- Financial Advisors: Certified Financial Planners (CFPs) or Registered Investment Advisors (RIAs) often act as fiduciaries, ensuring investment advice serves the client’s goals.
- Trustees: Manage trust assets for beneficiaries, following the trust’s terms.
- Executors: Handle estates according to a will, prioritizing heirs’ interests.
- Corporate Boards: Act in the best interests of shareholders.
- Attorneys or Guardians: Manage legal or financial matters for clients or wards.
Fiduciary vs. Non-Fiduciary:
- Fiduciary Standard: Legally binding to act solely in the client’s interest (e.g., RIAs under the Investment Advisers Act of 1940).
- Suitability Standard: Non-fiduciary advisors (e.g., some brokers) only need to recommend “suitable” investments, which may allow commissions or conflicts to influence advice.
- Example: A fiduciary advisor might recommend a low-cost index fund for a client’s retirement, while a non-fiduciary might suggest a higher-fee fund that pays them a commission, even if it’s less optimal.
Why It Matters:
- Trust: Fiduciaries are held to a higher ethical and legal standard, reducing the risk of exploitation.
- Protection: Especially critical in complex financial decisions, like retirement planning or estate management.
- Regulation: The SEC’s Regulation Best Interest (2019) and fiduciary rules under ERISA (for retirement plans) aim to strengthen consumer protections, though debates persist about loopholes.
Featuring: Don Trone
Categories: Financial Advisor Center, Financial Planning Center