For a moment, think back to the last time you or a loved one had a medical problem serious enough to warrant a trip to the doctor. What was the one thing you most wanted from your time with your physician? Of course, you wanted to know how to get well, and in all likelihood, you wanted to feel that your doctor was providing clarity about the treatment you needed. It’s also likely that the level of comfort you felt after talking with your doctor was directly related to the level of trust you had in your doctor’s knowledge and expertise. You went to your physician because they know your medical situation, and you trusted them to give you the guidance you needed.
Or let’s take another relationship that’s perhaps less crucial: the person who fixes your car. If you are fortunate enough to have a mechanic you really trust, you know how good it feels to take your car to the shop and feel confident that the advice you’ll get is really what you need. Because it is a relationship built on trust, you don’t have to worry about being charged for stuff you don’t really need. Your mechanic has your best interests at heart, and as a result, he has earned your trust.
At Mathis Wealth Management, our business is built on our clients’ trust; it is foundational to everything we do. It is so important, in fact, that we define our entire approach to our work by the value we place on that trust. That value is captured in the standard by which we do business: the fiduciary standard. By operating as a fiduciary for our clients, we believe we earn and deserve the trust they place in us to provide sound financial and investment counsel, based on a thorough knowledge of each client’s overall situation, goals, and priorities. We are a fiduciary advisor, and we take that responsibility very seriously.
But what, exactly, is the fiduciary standard? Why should it matter to you, and what difference does it make to your investment accounts and financial planning whether your advisor is a fiduciary or not?
Maybe a good place to start is with a basic definition. The Merriam-Webster Dictionary defines the word “fiduciary” as “of, relating to, or involving a confidence or trust.” In other words, when a person is in a fiduciary relationship or acting in a fiduciary capacity, they are in a position of trust and obliged to perform in a trustworthy manner toward the other party in the relationship.
To put that into the context of financial advising, it’s useful to look at the “fiduciary standard of care” as described by the CERTIFIED FINANCIAL PLANNER® (CFP®) Board of Standards: a fiduciary financial advisor is professionally and ethically committed to “act in their client’s best interests at all times when providing financial advice and financial planning.” What does it mean to act in a client’s best interest at all times? Here are several examples of how a fiduciary advisor is expected to conduct business, according to CFP® standards:
- Placing the client’s interests above their own interests or the interests of their firm.
- Avoiding conflicts of interest with clients or obtaining informed consent and properly managing the conflict.
- Continuing to put the client’s interests first, even when acting under a conflict of interest.
- Complying with the terms of the client engagement letter and following client directions, so long as they are reasonable and lawful.
- Acting with care, skill, prudence, and diligence based on the client’s goals, risk tolerance, objective, financial status, and personal circumstances.
(Source: https:// www.letsmakeaplan.org)
So, among other things, a fiduciary advisor should never recommend a product or service to a client solely on the basis of how much profit the advisor or firm will make as a result. Doing so would make the client’s interests secondary to those of the advisor, and a fiduciary advisor is prohibited from doing that. Also, a fiduciary advisor is obligated to reveal to a client any fees or costs involved in a particular course of action. In fact, such information should be put in writing and provided to the client before action is taken, so that the client can have all the facts before making a decision. Perhaps more vital than anything else, a fiduciary advisor should never recommend any course of action until they have a full understanding of the client’s financial situation, including their goals, needs, level of financial understanding, and priorities. This means that a fiduciary advisor is ethically bound to know their client as thoroughly as possible before giving any advice or recommending any particular product or service.
Maybe that all sounds good, but is there a way to know whether a particular advisor is a fiduciary or not? One good method is to simply ask, “Are you a fiduciary?” You can also ask follow-up questions, such as:
- How are you compensated for the advice and services you provide?
- Will you tell me about any costs and fees before making a recommendation?
- How do you decide which investments I should make?
- How often can I expect to hear from you, and when can I expect you to return my calls or emails?
- Will you try to keep my costs and fees as low as possible?
- What professional training and qualifications do you have?
If you’re dealing with a fiduciary advisor, the answers to these questions should be clear and straightforward. They should also be free of “investment-ese.” Why? Because if the client doesn’t understand the explanation, that’s another example of the client’s best interests not being placed ahead of everything else.
As a fiduciary financial planner and advisor, Mathis Wealth Management is committed to placing our clients’ best interest foremost in everything we do. When we do this, we believe that we are also seeking the best outcomes for our clients. In return, we believe this encourages our clients to place their trust in us. And after all, trust is the most important ingredient to success for our clients—and for us.
To learn more about the fiduciary standard and how it impacts our guiding values, please visit our website.
