What The Fiduciary Oath Actually Means, and How We Apply It Everyday
Finding someone you can fully trust in the financial world can seem overwhelming. After all, you’re trusting someone with something meaningful and personal - it can seem crazy to turn that over to a stranger.
When looking for an excellent financial planner, finding someone that abides by a fiduciary oath can help reduce unease and quickly establish trust. In this blog post, we'll be going over what precisely the fiduciary oath is, a bit of history on legal questions around fiduciary/suitability, and why Step by Step Financial embraces the fiduciary oath.
The Fiduciary Oath
The fiduciary oath is something a financial planner swears to that essentially promises to always act in their client's best interests.
Here’s an example of an oath written by the National Association of Personal Financial Planners (NAPFA):
“Following the NAPFA Fiduciary Oath means I shall:
- Always act in good faith and with candor.
- Be proactive in disclosing any conflicts of interest that may impact a client.
- Not accept any referral fees or compensation contingent upon the purchase or sale of a financial product.”
Other words often associated with this type of oath include transparency, loyalty, and honesty. These traits can be hard to find in the world of finances, as everyone seems to be looking out for themselves. In a fiduciary relationship, you work as a team to achieve your financial goals.
The fiduciary oath puts the client in the best position, as they can count on the financial advisor to uphold strict standards of integrity. How? In addition to caring deeply about their clients' well-being, advisors are legally obligated to do so.
In addition, fiduciary advisors are held to multiple rules and tenets.
This includes the duty of loyalty, duty of care, and duty to follow instructions. They are also held to an official Standard of Conduct that includes 15 specific duties to their clients. As you can see, this type of care goes above and beyond the norm.
The Fiduciary Oath and Investors
A fiduciary oath is particularly critical to investors. This is because you want to understand your investment's true nature (and cost) and not simply be sold a product. Those not part of a fiduciary relationship are often pushed to steer someone a certain way or sell certain products. This leads us to our next point.
Fiduciary vs. Suitability
When looking into what standards a financial planner offers, you may come across the term “suitability.”
This standard means that a financial planner adhering to it would make suitable recommendations based on a given client’s age, risk tolerance, and financial goals. These recommendations can be for anything from products to options to solutions.
While this may sound nice, remember there is often more behind the curtain than offering you “suitable” recommendations. The financial planner offering this standard most likely has a company or firm behind the scenes putting pressure on them to sell something. You won’t get the same type of transparency as you would with a fiduciary advisor.
We mentioned who regulates fiduciaries- the suitability standard is regulated as well. The Financial Industry Regulatory Authority (FINRA) sets the suitability standard. Their organization’s primary role is to enforce rules that govern registered brokers and broker-dealer firms in the United States.
They maintain that they regulate and protect investors from unethical abuse, but they have also faced some criticism that they do “just enough to maintain the public's trust.”
Their suitability standards may differ from those that fiduciary advisors are held to.
Comparing the Two
Unlike what’s “suitable,” fiduciary means the advisor has to recommend the best-known investment. Sometimes this can mean low-cost but still high-quality investments. In other words, they have client-centered advice.
Think of it this way. A doctor could recommend a cheeseburger everyday for lunch. It's fuel. It's calories. But is it in the best possible interest of his patient? No, it's not. A fiduciary would recommend a well-rounded diet that includes vegetables, carbs, fiber, and protein.
While it’s always good to weigh all of your options, it’s clear that a fiduciary relationship is the best route to take in almost all cases.
Step by Step Financial and The Fiduciary Oath
At Step by Step Wealth, we take pride in the fact that we genuinely care about our clients. Our CFPs strictly adhere to fiduciary standards.
That means our financial planners put clients before themselves and make recommendations based on what’s best for their client’s unique situations.
You can know that they can navigate various financial situations, all with the standard of care that puts you as a client first and never with ulterior motives.
We Walk the Walk
The fiduciary oath is discussed much in finance, but SBS Financial walks the walk.
We put the best interest of clients above our own in all things. We’d love to meet with you and provide you with the fiduciary standard of care, regardless of your financial needs. Contact us today to work with a CFP who will ensure the very best for you.