What is a Fiduciary?
Simply put, a fiduciary acts on behalf of another. A fiduciary puts the interest of the client ahead of his or her own interests. For a fiduciary, this is a legal obligation to act in the interests of the client. The following story uses a doctor in place of a commissioned broker to illustrate the difference between a commissioned broker and a fiduciary.
Imagine you wake one night with a piercing pain in your abdomen. It’s your appendix getting ready to burst. You rush to the local hospital, sign the admission paperwork as quickly as possible, and wait to meet the surgeon. The surgeon rushes you in to remove your appendix. When the anesthesia wears off, you awake with the same stabbing pain. Turns out, the doctor removed your spleen, not your ailing appendix. After you find other medical help and heal, you decide to sue the doctor. You meet with a lawyer who informs you that you do not have a case. You are stunned. How could such incompetence not be grounds for a lawsuit?
The lawyer explains that doctors are not required to study medicine; they just need to pass a test for whatever medical equipment they use. If they want to use a stethoscope, they must pass a test for it. They don’t need any medical knowledge, just product knowledge. Also, doctors aren’t required to have any professional duty to their patients. The doctors can perform unnecessary operations on patients for financial gain. Finally, the admission paperwork you signed at the hospital states that if there are any disputes you must agree to arbitration in front of the hospital’s board of directors.
Sounds far fetched that doctors or any professional would be held to such low standards, doesn’t it? But, these are the exact standards for your commissioned broker. Even though these financial consultants are investing your life’s savings, they have no fiduciary duty to you. A fiduciary, by law, must act in your best interest in all endeavors. In the contract you sign with your broker, a disclaimer exists, that states, "our interests may not be aligned with yours."
Additionally, most brokers have very limited knowledge. They only need to pass the Series 7 test which explains how to buy or sell products. It doesn’t teach theory on investing or tax planning. And if you ever want to sue your broker, forget about it. Your contract states that if there are any disputes you must go through arbitration. This arbitration doesn’t take place in front of an objective party, but the broker’s own trade group.
Picket Fence Financial serves as a Fiduciary. We put your interests first. We are also Certified Financial Planner™ licensees, which require us to earn 30 continuing education credits every two years. And our trade association of fee-only financial consultants, the National Association of Personal Financial Advisors (NAPFA) requires 60 continuing education credits every two years. This ensures we stay on top of the ever changing financial environment, so we can fulfill our fiduciary duty to you.