Are you a Fiduciary?
As a Certified Financial Planner™ professional, we are always obligated to act as fiduciaries when providing financial advice.
In addition, we must fulfill the following duties:
• Duty of Loyalty - requires us to place our clients’ interests above those of the CFP ® professionals and the CFP ® professionals’ firm.
• Duty of care - requires the CFP ® professional to act with the care, skill, prudence, and diligence that a prudent professional would provide considering the clients goals, risk tolerances, and financial and personal circumstances. A CFP ® professional must disclose conflicts of interest and obtain the client’s informed consent and then manage those conflicts of interest in the client’s favor.
• Duty to follow client instructions - The obligation of the CFP ® professional to comply with the terms of the engagement as well as to follow the client’s reasonable and lawful instructions.
The purpose of these rules is to help the consumer know the CFP ® professional is delivering competent and ethical advice.
By contrast, a non-fiduciary financial advisor, might receive a commission for selling you a particular investment that is not in your best interest and not be required to tell you how they profited from it.
What Is a Fiduciary?
A fiduciary is a person or organization that acts on behalf of another person or persons, putting their clients' interest ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the client's best interests.
A fiduciary could be responsible for the general well-being of another person, like a child’s legal guardian. Most often, being a fiduciary, involves finances—managing the assets of another person, or of a group of people. Money managers, financial advisors, bankers, insurance agents, accountants, executors, board members, and corporate officers all have fiduciary responsibility.
A fiduciary's responsibilities and duties are both ethical and legal. When a party knowingly accepts a fiduciary duty on behalf of another party, they are required to act in the best interest of the client or party whose assets they are managing.
A fiduciary is expected to manage the assets for the benefit of the other person, rather than for their own profit, and cannot benefit personally from their management of those assets.