When making investment decisions, sometimes it is difficult to know what all the different investment terms mean. One of these terms is fiduciary. The following description is from the University of Illinois Extension website Choosing and Financial Professional at http://web.extension.illinois.edu/financialpro/.
A fiduciary is someone who must legally put your interest first, even before his or her own interests. A fiduciary financial professional who is advising you about investments, must recommend investments that are best for you. Fiduciary professionals must also tell you about their qualifications and services as well as how they are paid. They must reveal any potential conflicts of interest and any disciplinary actions taken against them.
Remember, you have the right to know if your financial professional is a fiduciary.
How do you know whether your financial professional is a fiduciary or not? First, ask questions. You have the right to know this information. Second, the Securities and Exchange Commission (SEC) requires brokers and other professionals who are not fiduciaries to include the following statement on all marketing materials:
Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons’ compensation, may vary by product and over time.
If the client is asked to sign a Financial Industry Regulatory Authority (FIRNA) binding arbitration agreement, then their advisor would not be held to a fiduciary standard by FIRNA.
There are scores of credentials for financial professionals. Some are very good indicators of the person’s training and skill, while others indicate knowledge of a more limited scope. Still, credentials can serve as one indicator of a financial advisor’s qualifications.
For more information, visit the University of Illinois Extension Choosing a Financial Professional website.
