What Does It Mean To Be A Fiduciary?

We Must Broaden And Clarify The Definition Of ‘Fiduciary’ So Clients Receive More Comprehensive Advice, And At Times Go Above And Beyond Legal Requirements

As a financial advisor, you may choose to or are legally expected to act in the best interest of your clients. That’s what it means to be a fiduciary, but what does that actually entail? Unfortunately, there is no clear-cut answer. The definition of a fiduciary has been evolving since the Investment Advisers Act of 1940 was enacted and it’s still a topic of debate in the wealth management industry today.

To add to the confusion, approximately 60% of financial advisors act as “hybrids,” following both fiduciary and suitability standards while serving their clients.

The lack of a clear definition of a fiduciary has led to several negative consequences. Some advisors have taken advantage of their clients, pushing proprietary or higher payout products instead of those that are truly in their clients’ best interest. This has resulted in increased regulation and transparency requirements, with advisors now required to clearly disclose all fee types and potential conflicts of interest.

What’s In The Scope Of Fiduciary Responsibility?

The scope of a fiduciary’s responsibilities remains fluid. While most client-centric financial advisors appreciate the power and importance of comprehensive advice, they may not always feel legally or morally bound to provide it to all of their clients. This is particularly true when it comes to advice around Social Security benefits, catch-up contributions or qualified charitable distributions (QCDs).

Increased regulation

The decision of when to start taking Social Security benefits, for example, is of major financial consequence. The longer workers wait to file, the higher their lifetime benefits can be. According to a recent study sponsored by the Federal Reserve Bank of Atlanta, more than 90% of filers would benefit from waiting until age 70, yet only around 10% actually do so, leaving a median of $182,000 of lifetime benefits on the table. Wealth management advice that goes beyond investing matters and can create real, quantifiable value for clients.

As a financial advisor, you should be asking yourself whether you are advising all of your clients on these important topics. If not, can you call yourself a true fiduciary? Are you acting in your clients’ best interests if you do not provide them with guidance and information around these complex and important wealth-related questions?

Toward A Broader Definition Of ‘Fiduciary’

It’s time to broaden and sharpen the definition of a fiduciary beyond investment products and bring the promise of comprehensive advice to all American investors. They deserve nothing less. A fiduciary should truly put their clients’ interests first, providing guidance on all relevant aspects of their financial lives.

Comprehensive wealth management advice includes not only investment strategies but also financial planning, retirement planning, tax planning, estate planning and more. It requires a deep understanding of your clients’ goals, values and priorities, as well as their financial situation.

Going Above And Beyond For The Client

Earn clients’ trust

The definition of a fiduciary may be fluid, but the principles behind it are not. To be a fiduciary, you must be committed to providing this level of service to all of your clients, not just a select few. You must be transparent about your fees and potential conflicts of interest, and you must always act in your clients’ best interests.

This may require you to go above and beyond what is legally required, but it’s what your clients deserve. By doing so, you can build trust and long-term relationships with your clients, while helping them achieve their financial goals and advancing the reputation of our industry.

Philipp Hecker is CEO of wealthtech firm Bento Engine, which provides solutions for advisors to promote comprehensive client services.

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