Understanding the Word “Fiduciary”
I see the word “fiduciary” tossed around a lot these days. New clients sometimes ask if I’m a fiduciary. Yes indeed, as both a financial planner with a wealth management firm and an attorney. It is always good to ask, and the word fiduciary is important. However, you can’t just stop at the word itself.
By definition, a “fiduciary” is a person who holds a legal and/or ethical relationship of trust with one or more other parties. Fiduciaries are legally obligated to put the best interests of another person ahead of their own. A fiduciary obligation is created in many different settings. A trustee of a trust is a fiduciary to the trust beneficiaries. Corporate board members are fiduciaries to the shareholders of a company. Anyone who manages financial assets for the benefit of another person is a fiduciary, with the legal responsibility to look out for the best interests of that person.
But being a fiduciary and having integrity are not one and the same. A person can be in a fiduciary role but breach their fiduciary duty because they lack honesty and integrity. There are a myriad of examples of breach of fiduciary duty. Bernie Madoff, the infamous investment manager who swindled billions from his clients, was a fiduciary who breached his duty.
Some people working in the financial planning/investment industry take careful pains to make sure the word “fiduciary” shows up after their name. They hope that word will enhance their credibility, but credibility and integrity have very little to do with what title comes after a person’s name. As I often tell my clients and prospects when we discuss the term fiduciary, it really comes down to whether the person you are dealing with is at heart an honest and straightforward person. If they aren’t then having the word fiduciary after their name is meaningless.
Don’t stop at the word fiduciary. References and, most importantly, your personal experience with the person and their firm will go a long way to tell you if that person really takes their position as a fiduciary seriously. Start your investigation by looking at little things. Did the person follow-up on their promises? Did they get that piece of information to you, or schedule your follow-up appointment as timely as they said they would? As Albert Einstein said, “Whoever is careless with the truth in small matters cannot be trusted with important matters.”
It’s appropriate for you to ask someone if they are a fiduciary. It’s just as important to go beyond the answer to really explore what kind of person you’re dealing with.
Fun fact: Yes, I know the Lions were not fun to watch last Sunday. But let’s remember that since 2004 five teams lost the first game of the season and went on to win the Super Bowl: New York Giants, Baltimore Ravens, New England Patriots, Los Angeles Rams, and Kansas City Chiefs. Now, let’s see how the next game goes.
