Stop Asking, Are You a Fiduciary?- The Reason Why Will Surprise You

We've been getting this question a lot: Are you a fiduciary?

And we find that most people know to ask the question... but they don't understand what it means.

What It Means

Being a fiduciary means that you have a duty to work in your client's best interests.

If you're a fiduciary, you can't do things like- recommend a product because you'll get a higher commission than for another product... or just recommend what's "suitable" but not perfect for that client...

Actually, you can't recommend products or services at all unless you've done a thorough job of analyzing the client's priorities and needs.

Hot Tip That's why you only get frustratingly vague answers online if you try to search for things like "How much money should I save for retirement". People aren't trying to be cagey- or vague- or trap you into calling them for more information. They simply cannot legally or ethically give such guidelines online if they are fiduciaries!

Here's the Background

Back in the 1980s and 90s, the only well-known types of fiduciaries were stockbrokers. These were people who had their FINRA licenses for managing securities- assets like stock brokerage accounts. It was really important for these people to be able to be trusted; the 1980s were the first entry of the average American into the stock market, usually via the brand-new 401(k) account.

It was a new era of how money works, and the US needed regulations to prevent financial mismanagement. Enter "fiduciary duty". Not everyone had it...

... And that was the problem. A whole bunch of other types of financial people could convince you to part with your hard-earned dollars... without being bound by any legal or ethical framework. Horrible, right?

So, stockbrokers and FINRA-certified financial professionals got really good at leaning on their fiduciary credentials, and in training clients & potential clients to ask Are you a fiduciary before handing over their hard-earned money.

And that's great! Being a fiduciary was a great way for these people to differentiate themselves, educate others, and protect people from big financial mistakes by trusting people who didn't have to be trustworthy.

Here's the Problem

Fast-forward to today. Since 2008, fiduciary regulations have been tightening up, so now... almost everyone who touches your money (outside of the checkout line 😆) is a fiduciary. Here's a list of types of people who are fiduciaries:

#1: Stockbrokers

You're not... surprised by this, right?

#2: Insurance agents

Insurance companies have been adopting fiduciary standards for years now.

#3: Mortgage people

This vague category includes mortgage companies, brokers, and lenders...

#4: Real estate people

... same with both realtors, escrow agents, real estate agents & brokers.

#5: Lawyers

There are a lot of reasons for this one.

#6: Accountants & Bookkeepers

Not all accountants or bookkeepers have fiduciary responsibilities, but they do if they provide services like tax prep, asset management, etc.

#7: Trustees & Board Members

These people act on behalf of a trust, business, company, or other organization, and they must act in the best interests of their beneficiaries.

...And more

There are other fiduciaries too- think bankers & more- and really, only a few types of professionals who aren't fiduciaries- namely, companies that deal with credit cards, credit counseling, debt relief, debt counseling,

Does this mean that a non-fiduciary is untrustworthy?

Not at all! Just means that you can't sue them if they give you bad advice or don't do what they say they will 🤷🏻‍♀️

On that topic... even if you sue someone for betraying their fiduciary duty, you're not really going to get anywhere. You'll win in court, but that will be cold comfort since you've already kissed your money goodbye.

Stop Asking "Are You A Fiduciary?"

So asking the question, Are you a fiduciary?, isn't a great way to differentiate "Who Can I Trust With My Money" anymore

Ask This Instead

Well, there's no quick, clean way to determine who to trust in this world. (Divorcees, am I right? Let's hear it from that corner of the room!)

To figure out if you can trust someone with your money, ask these questions instead:

• What does your relationship look like with most clients? Is it an ongoing relationship, or do you just speak once or twice a year?
  This touches on trust and whether or not you like the person's style more than integrity, but definitely needs to be established.
• Have you ever run into a situation that challenged your integrity? How did you handle it?
  How someone answers this question will tell you a lot about them- both how they handle challenges, as well as what integrity means to them.
• Tell me about a professional mistake you made or almost made, and how you fixed it.
  This can be personal... but then, so is handing over your money!
• Did your momma raise you right?
  Don't... actually ask this. But know that a person's personality, ethics, background, and experience will determine their integrity to a much stronger extent- than will loyalty to a legal or industry requirement.
• Not a question to ask- but a red flag to notice- is whether or not the person answers your questions directly or is evasive.
  I'm not sure, let me look into it and get back to you- while never getting back to you- is an evasive way to change the subject and distract you from a question they find uncomfortable. I'm not sure, let me get back to you- and they get back to you- is a good sign that integrity and accuracy matters to this person more than a sale. 

If anyone gets defensive with any of these questions, hint: they're not the right person to give your money to. These are not the only questions to ask, when deciding whether or not to work with someone. These are just the key questions to ask to establish trust & integrity.

Establishing trust takes time- there's no one-question determinant of who's trustworthy or will treat you right.

And that's as it should be. Your hard-earned money is too important to allow the answer to one question to determine your actions and your choices.

Now That's Smart Money 🧐