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Benefits A-Z: What is a Fiduciary?

The large portion of people do not have the vision or skill set to manage large sums of money in the long term. That is why many people turn to financial professionals for help in planning their financial future. However not all financial advisors are the same. They aren’t all as ethical or trustworthy as you would think and if you get stuck with one of these, you may be in for a big loss. On the other side of the coin there are those that operate under the guidelines of the fiduciary standard.

What is the fiduciary standard?

The fiduciary standard is sort of like the Hippocratic oath that doctors take to “do no harm”. It was established by the Investment Advisors Act of 1940 and whom ascribe to it can be regulated by the SEC and state securities. The fiduciary standard requires that advisors put their clients’ interests above their own even when that may mean losing a commission. For example, a fiduciary cannot make stock trades that may result in a higher commission if it will result in a loss for the client. Also, fiduciaries are required to report any potential conflicts of interests with their clients.

Not all advisors are created equal

Not all financial advisors are fiduciaries and thus are not all bound by the fiduciary standard. Many brokers, insurance agents and advisors are simply required to act under the suitability standard which dictates that an advisor can only recommend investments and products that are suitable for his or her clients. Unlike the fiduciary standard, the suitability standard does not require professionals to put the needs of the client first. It is important to note that a recommendation that is “suitable” for a client may not be also in the client’s best financial interest.

Comfort for Retirement

Thanks to an announcement made by the Department of Labor in 2016, more financial professionals would be held to the fiduciary standard instead of the suitability standard. Specifically named in this announcement are those who manage retirement assets. This means that your 401k advisor is being held to the fiduciary standard and is required to manage your money in a way that benefits you first. Unfortunately they don’t always know that they are being held to this standard. In a recent AllianceBernstein (AB) survey, 1,000 DC executives were asked if they were fiduciaries: 49% said no, and 6% didn’t know. Based on their duties, all were fiduciaries. Even 48% of the executives from plans with assets of $500 million or more thought they were not fiduciaries.

More regulation may be needed

The Consumer Financial Protection Board (CFPB) is working with the Financial Planning Coalition to urge the SEC to adopt a broader and uniform standard for non-retirement investment advisors and broker-dealers that is of the same caliber as the fiduciary standard. Adoption of a new standard will ensure the personalized advice consumers receive is always in their best interest.

If your company is looking for more financial and employee benefits resources, call 800.583.6908 or visit or speak to a benefit consultant to see what we can do to help make you healthier and prosperous.