DEFINITION:
Fiduciary duty is the legal and ethical obligation of a financial advisor to act in your best interests, prioritizing your needs over their own.
WHEN AND WHY IT’S USED:
Fiduciary duty is used as a standard of conduct in the financial industry to ensure that advisors make decisions that benefit their clients. This duty comes into play during all aspects of financial planning and investment management, from asset allocation to specific investment recommendations. It provides a framework that holds advisors accountable for their actions and decisions.
IMPORTANCE IN COMMUNICATION:
Clear communication about fiduciary duty with your advisor builds confidence and trust in their advice. When you understand that your advisor is legally bound to act in your best interest, you can feel more secure in the decisions being made on your behalf. This discussion helps you establish expectations and holds the advisor accountable for aligning their strategies with your financial goals.
Moreover, discussing fiduciary duty allows you to ask detailed questions about how conflicts of interest are managed and what steps the advisor takes to ensure impartiality. This transparency is key to forming a strong, trust-based relationship, ensuring that your financial strategy remains focused on your success.
EXAMPLES IN COMMUNCATION:
“Can you explain how your fiduciary duty influences the recommendations you make for my portfolio?”
“What measures do you take to ensure that your advice is always in my best interest?”