Fiduciary is a funny word. What does it mean and why is it important to have a fiduciary financial advisor?
Here’s the dictionary definition of “fiduciary”:
of, relating to, or involving a confidence or trust: such as (a) held or founded in trust or confidence; (b) holding in trust; (c) depending on public confidence for value or currency.
But when it comes to financial advisors, the concept of a fiduciary financial advisor is more specific. According to the CFP Board, a fiduciary is
someone who will put your interests ahead of theirs. This is important because there may be situations where the interests of the financial professional conflict with your interests. A fiduciary has an obligation to disclose the conflicts of interest and continue to put your interests first. That may seem like common sense, but not all financial professionals have a fiduciary obligation.
Not All Financial Professionals are Fiduciary Financial Advisors
There are two main standards of conduct in the financial industry: fiduciary and suitability.
Imagine needing a car. A fiduciary advisor would recommend the best car for your needs, even if it means suggesting a used car from a different dealership. A suitability advisor might recommend the best car they have available at their dealership, even if it’s not the absolute best fit for your needs.
Let’s bring it back to finance. Let’s say an advisor recommends that you invest in an S&P 500 index fund. There are lots of choices out there that accomplish the same thing, but some come with higher expenses (that can end up as commissions for a broker). A fiduciary financial advisor will direct you to a low-cost, reliable, effective fund that meets your needs. An advisor acting under a suitability standard may direct you to a fund that meets your needs but it only has to be suitable–e.g., a more expensive fund that fits the bill but you can “afford” the higher fee, so it’s suitable for you. But it may not be in your best interest.
Dominion Financial Advisors is a Fiduciary Financial Advisor
As a fiduciary financial advisor, we have the duties of loyalty and care. We must place your interests above our own interests. We must work to avoid conflicts of interest and disclose any that exist. We must act without regard to our financial interests. We must act with care, skill, prudence, and diligence.
Not only are we required to act this way, but we do act this way.
At Dominion Financial Advisors, we help you replace deferred, delayed, and avoided decisions with informed and guided actions. Schedule a complimentary consultation with us to see how we can work together to plan your financial future.