The term “fiduciary” has long been used in the financial industry, but its true meaning remains elusive to many, both inside and outside the industry. With everyone claiming to be a fiduciary nowadays, it’s essential to differentiate between genuine trust and questionable claims. Let’s delve into the definition of this term and explore some practical examples.
The True Meaning of “Fiduciary” and the Challenge of Understanding
The essence of “fiduciary” is rooted in legal principles. It pertains to individuals or businesses with specialized knowledge and expertise, held to a higher standard of conduct and trust than ordinary businesspersons. While most financial firms may pass the initial test, there’s more to the definition. A true fiduciary must also avoid self-dealing and conflicts of interest, prioritizing the best interests of those who trust them. In simpler terms, a fiduciary is someone who has an obligation to act in another person’s best interest, managing and safeguarding their property or money.
At its core, fiduciary responsibility places the interests of the client above those of the fiduciary. This fundamental principle may stir unease, and rightfully so. Let’s examine a recent example that highlights the disparity between a true fiduciary and a business structure that falls short.
Unveiling Misaligned Priorities: A Case Study
Recently, an article by Julie Daclag for Financial Advisor IQ shed light on the issue. The headline read: “BlackRock Shelled Out $40M+ to Merrill for Marketing in ’22.” However, this was just the tip of the iceberg. American Funds, Federated, Franklin, and numerous other firms engaged in revenue sharing and fee arrangements, amounting to millions of dollars. While these organizations may not explicitly claim to be fiduciaries, they do mention it in their marketing materials for select services. This ambiguity can easily confuse consumers, leaving them questioning whether certain products are being prioritized over others, regardless of suitability.
Clear Indicators of Fiduciary Status
Distinguishing between true fiduciaries and others can be simplified with clear indicators. Consider the following factors:
- Kickbacks: If a financial professional receives kickbacks for promoting specific investments, they cannot be considered a fiduciary.
- Proprietary Products: Selling proprietary products where the financial professional has a financial interest, such as mutual funds or partnerships owned or managed by their firm, disqualifies them from fiduciary status.
While these indicators don’t necessarily imply poor advice, they do signal a “buyer beware” situation, posing risks to those seeking trusted advice.
Our Journey as Fiduciaries at Mission Wealth
When we established Mission Wealth in early 2000, the word “fiduciary” was not part of our vocabulary, nor was it commonly used. However, when structuring our legal entity and business practices, we inadvertently assumed the role of fiduciaries. Our primary motivation was not to market ourselves as fiduciaries but rather to uphold the belief that there is no other way to run a business that clients rely on for their best interests.
Your financial goals deserve the highest level of care and dedication. Choose a fiduciary who will always put you first.
Take the next step in securing your financial future. Contact us today to experience the difference of working with a true fiduciary partner.
Mission Wealth is a Registered Investment Adviser. This commentary reflects the personal opinions, viewpoints, and analyses of the Mission Wealth employees providing such comments. It should not be regarded as a description of advisory services provided by Mission Wealth or performance returns of any Mission Wealth client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Mission Wealth manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
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