The role of a fiduciary
Here’s one definition of the word fiduciary: A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets for the benefit of the other person rather than for his or her own profits.
Or as Cheryl Costa, CFP, puts it: Being a fiduciary means being able to sit across the table from clients, look them in the eye, and say that I work for them and only them — all of the time.
It’s a bit like riding the bus (or a taxi as I explain in my video above). When you ride the bus, you expect that the driver will put your interests first. She’ll do everything she can to get you where you need to go, on time, and as comfortably as possible. She won’t wind the window down so that she’s cool and you’re freezing to death in the back; she won’t speed over the bumps and potholes in the L.A. streets, making life very painful for her passengers, because she needs to go to the bathroom in a hurry; she won’t whiz past your stop five minutes early, meaning that you miss the bus, because she’s too busy gabbing on the phone.
No — she puts the passengers first.
Now, I know the bus driver isn’t a fiduciary. She’s not holding any of my assets, for one thing. But the role of a fiduciary and a bus driver –- or any service provider –- is kind of similar. The bus company says it’s committed to “convenience, reliability, safety, and speed. And striving to improve the quality of life for those who live, work or visit Los Angeles.”
In other words, there’s a contract there, both implicit and explicit. The driver has a duty to provide us with a convenient, reliable, comfortable ride. If he pays attention to his own needs at the expense of his passengers, he’s not living up to his contract.
The same goes for asset managers. If I give my money to someone to invest, and she’s a fiduciary, I expect her to invest it to my advantage, not her’s. I expect her to do due diligence on the investment she makes, and give me good advice about where I could put my money. I expect her to tell me everything she knows and can find out about an investment, so that between us we invest my money to best meet my goals.
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