What does it mean to be a true fiduciary?

What is a fiduciary?

A fiduciary is a person or legal entity that has the legal and ethical responsibility of acting on behalf of another. You might be familiar with the following fiduciary relationships:

• doctor to patient
• attorney to client
• realtor to client
• trustee to beneficiary
• corporate officer to shareholder

All of these relationships require the fiduciary to act in the best interest of the beneficiary of the relationship. Fiduciary duty is the highest standard of care.

Some, but not all, Financial Advisors are fiduciaries.

Is my Financial Advisor a fiduciary?

Registered Investment Advisors like Jackson Square Capital have a fiduciary duty to their clients.  On the other hand, Advisors who work for broker-dealers (those who work for banks or large ‘wirehouses’) are required to meet the less-stringent ‘suitability standard,’ which doesn’t require putting the client’s interests ahead of their own.

A fiduciary Financial Advisor:

1. Puts clients’ best interest before their own. This gives you peace of mind that legally your advisor cannot steer you into investments that will profit the advisor, their firm, or other clients above you.
2. Acts in good faith and provide all relevant facts to client. This often results in increased transparency.
3. Avoids conflicts of interest and discloses potential conflicts of interest. This provides a high standard for prioritizing the client.

If your advisor is not a Registered Investment Advisor (RIA) or Certified Financial Planner (CFP), it’s likely they are not legally held to the fiduciary standard.  Recently, a Department of Labor rule expanded the Fiduciary duty to apply to advisors and insurance brokers when dealing with retirement assets.

Non-retirement assets at a brokerage firm are held only to the suitability standard.

What is the suitability standard?

The suitability standard is what is required of most Financial Advisors, and is a lower standard of care than the fiduciary standard. The suitability standard only calls for fair dealing and best execution at any given moment in time, whereas the fiduciary standard requires comprehensive care on an ongoing basis.

How do the fiduciary and suitability standards compare?

When choosing between two similar products

• A non-fiduciary can could recommend one with a higher commission that goes into their pocket, since both investments are suitable for the investor.
• A fiduciary could not recommend a higher commission product when choosing between two otherwise similar products.

When advising on a product

• A non-fiduciary is only responsible for ensuring the product is suitable for you at the moment.
• A fiduciary’s duty does not end with the recommendation/ implementation. The fiduciary is responsible for continuing to monitor clients’ accounts and overall financial picture on an ongoing basis.

When it comes to conflicts of interest

• A non-fiduciary must disclose conflicts of interest.
• A fiduciary must avoid conflicts of interest and disclose any potential conflicts.

At Jackson Square Capital, the fiduciary standard is more than a legal obligation: it is an important part of our identity. We take our duty to our clients very seriously, and know the fiduciary standard helps us to make decisions that align with clients’ needs and achieve our mission of simplifying  clients’ financial lives.

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