It’s a simple looking word, but it can mean everything with managing your investment portfolio. The word is “fiduciary,” and in the world of money it means a person who is committed to putting your financial interests ahead of his or her own.
The word is important because true fiduciaries are much harder to find than you might think. Most of the people who want to give you advice about your money aren’t held to that high standard. At best, they’re held to a “suitability” standard, which means they’re supposed to reasonably believe that the investment and insurance products they want you to buy are appropriate for your situation.
Just “appropriate” — not “the best choice” or “in your best interests.”
It’s a situation that’s being exploited by many of today’s brokerage and insurance companies, said Bob Veres, editor of Inside Information, a newsletter for financial planners. These financial-service companies have figured out their customers want objective advice, but the companies aren’t ready to abandon their commission-based sales model or commit wholeheartedly to the fiduciary standard.
Most people really do not understand the difference between fiduciary and suitability standards, said consumer advocate Barbara Roper, who is director of investor protection for the Consumer Federation of America. The federation’s surveys show that the majority of people who work with a financial adviser trust that they’re getting good advice.
“Two-thirds of investors aren’t second-guessing the recommendations they’re getting from their (financial) advisers,” Roper said. To be that trusting “outside of a situation where a person is committed to putting your interests first is pretty risky business.”
You may well find that your adviser isn’t a fiduciary but decide to work with him or her anyway. If your stockbroker has done well by you so far, for example, you may be perfectly comfortable continuing to follow his or her tips. But you need to keep in mind that your adviser, like a car salesperson, isn’t working for you.
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William 11.25.08 at 8:22 am
I often feel my stock broker is more concerned with his commission than really making me any money. It’s a tough market out there, but heck, let’s slow down the constant buying and selling, hey buddy?