DEFINITION:
A fiduciary is a person or organization legally obligated to act in another party’s best interests. In finance, this typically means a financial advisor who must put your interests ahead of their own.
WHEN AND WHY IT’S USED:
Fiduciary duty is used to ensure that financial professionals make decisions that benefit you, not just themselves. This duty applies when your advisor creates a financial plan, selects investments, or manages assets, ensuring that every decision is aligned with your long-term objectives. It is especially relevant during market volatility or when major financial decisions are made, as it reinforces that your interests remain the top priority.
IMPORTANCE IN COMMUNICATION:
Clear communication about fiduciary duty with your advisor builds confidence that your financial interests are being prioritized. It sets a standard for transparency and ethical behavior, ensuring that you understand the basis on which investment decisions are made. This conversation is vital for establishing trust and ensuring that your financial goals are clearly understood.
Moreover, discussing fiduciary obligations helps you ask informed questions about how recommendations are generated and what conflicts of interest may exist. This proactive dialogue ensures that you and your advisor are aligned, fostering a strong, trust-based relationship that supports your long-term financial well-being.
EXAMPLES IN CONVERSATION:
“Can you explain how your fiduciary duty influences the investment choices you make on my behalf?”
“How do you ensure that your recommendations are always in my best interest?”