The financial world uses a variety of terms that an average person may not be immediately familiar with. Understanding these terms, and the concepts behind them, is important so you can make informed decisions about investing, saving, and other financial considerations.
Having a financial advisor can help you do this more confidently, but you may encounter many new terms in the search for such an individual. One common word is “fiduciary.” Knowing what this term means can help you determine what a potential advisor’s responsibilities are to you, legally and ethically, and should be an important factor in deciding who to work with.
A fiduciary is a person or organization that acts on another’s behalf and is obligated to uphold a high standard of care, legally and ethically. As an adjective, it means relating to confidence or trust. Someone with a fiduciary role is obligated to act in the best interest of whomever they owe this duty of loyalty.
Fiduciary relationships can occur in different professions, but the term is most associated with the financial industry. It applies to advisors who have an obligation to act in the best interest of their clients.
Finding a financial advisor who will act in your best interest is important. Knowing the different terms you may see and how these terms do (or don’t) correspond to fiduciary duties is essential.
Investment advisors, including anyone who gives investment advice, have a fiduciary duty to clients under the Investment Advisers Act of 1940.
Broker-dealer is a broader term that describes someone who buys and sells securities on behalf of a client. These individuals and firms aren’t uniformly governed by a fiduciary duty, although some are still held to this standard based on state law or other regulations. However, they are still governed by the Financial Industry Regulatory Authority (FINRA) and must have a “reasonable belief” that their plan is suitable for their customer. Although this does provide some protection for clients, it leaves the door open for some broker-dealers to focus on commissions rather than their client’s best interests.
Beyond investment advisors and broker-dealers, many titles are not officially regulated, but there are certifications you can look for to help you locate a qualified advisor. CERTIFIED FINANCIAL PLANNER™ professionals, or CFP® professionals for short, are held to a fiduciary standard by the CFP Board’s code of ethics and have extensive financial education and experience.
At Wellspring, we are committed to acting in the best interests of our clients and uphold strict standards. We act in a fiduciary capacity, and our CERTIFIED FINANCIAL PLANNER™ professionals have valuable knowledge and experience that they use to help you reach your financial goals. Most of our advisors are already CFP® professionals or are actively working towards becoming certified. Additionally, we are a fee-only firm, meaning we don’t get paid commissions to promote certain investments or products. We have deliberately removed any conflicts of interest to focus solely on putting our clients first.
To learn more about our fiduciary financial planning services, contact us today.
Wellspring Financial Partners, LLC does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.