Weekend Reading: The Financial Fiduciary Standard Explained

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend reading fiduciary standard Weekend reading fiduciary standard
Weekend Reading

Many buzzwords circulate the financial industry, and ‘fiduciary’ is one.


Fiduciary 101: What is a fiduciary? From a legal standpoint, being a fiduciary means a financial advisor is ethically obligated to put their clients’ needs ahead of their own. At Howard Bailey, we’re proud to be held to a fiduciary standard – and, while we might hope all advisors follow such guidelines, the requirement to do so isn’t clear-cut. In fact, within the financial world, you’ll often find two types of client care:

📌Suitability standard – An advisor provides recommendations that are 'suitable' for the client

📌Fiduciary standard – An advisor provides recommendations that are in the client’s best interest.

It comes down to pay: Although both classes might sound similar, the debate among which is best for the client comes down to compensation, which for advisors can be in the form of commission, flat fees or a percentage of assets under management. One side believes a client should be charged one way, while the other believes it follows a fiduciary standard to be charged another. Ultimately, the author here makes the point that beyond labels, regulations and disclosures, it comes down to an advisor’s character to discern right from wrong. That’s not to say, however, you might gain greater peace of mind knowing your advisor is legally bound to act in good faith.

For example, some individuals who refer to themselves as ‘financial advisors’ do not hold any series licenses at all, and instead operate through an insurance license regulated by the state. These advisors aren’t held to any standard, and typically act as agents of an insurance company, marketing fixed life insurance or annuity products for a commission. With that being said, how do you know if the advisor you’re working with is working just as hard for you? Do your research, and know what questions to ask up front.

Choose carefully: It’s important for you to find an advisor you can trust and build a relationship with for the rest of your life, first and foremost. Additionally, it’s just as critical to consider the standard they are legally bound to, and if they have access to all the tools you may find valuable for this next stage of your life.