A fiduciary is 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.
The fiduciary owes an obligation to carry out their responsibilities with the utmost degree of good faith, honesty, integrity, loyalty and undivided service for the best interest of another. The `good faith' component imposes an obligation to act reasonably in order to not favor anyone else's interest ' including the trustee's own interest ' over that of the beneficiary.
And who should care?
- Anyone who does not want to be mistreated, taken advantage of, or financially exploited, when placing their financial world in the hands of others.
- In a world that has been labeled `buyer beware', the risks can be high when dealing in subjects that require in-depth knowledge. But unless someone is legally required to meet the fiduciary standard of treatment toward another, it is not likely to happen.
- Sometimes we take comfort by thinking that the Government (for the people, and by the people) can be trusted to place it's citizen's best interests ahead of those of the bureaucracy. But that is often not the case. Government officials may be known as `public servants', but they are also the folks that invented and promote the lotteries (in addition to taxes). Christopher Salomon, in a MSN Money article dated 1/05/06, points out that about one-half of adult Americans spend $45 billion annually on some 35,000 government sponsored lottery games. This is an undertaking designed to deprive taxpayers of (more of) their money.
- Sometimes we think the press and the media can be relied on to place the interest of it's reader/viewer first. But they, by design, earn their rewards from the revenues they can indirectly generate for their organizations, through the sale of subscriptions, or their listener-viewer ratings, which determine advertising revenues. Is it your best interest they are thinking about? Or will they write and/or produce content with the objective of enhancing their revenues? The media simply doesn't place your best interest ahead of their own. Like most businesses, the numbers drive them, and they are not caretakers of the best interest of individuals whose names they do not know, in a system that does not provide for it.
- After loved ones, the first priority for most people is personal health, and next in line is financial health. Happily, there are (still) some physicians in America that subscribe to a code that honors the patient above all else. But even the medical community has become a business in America that can make a clean doctor ' filthy rich ' on the backs of others. Few doctors today would recognize their patients, without the benefit of their file folder. And if they were to cancel an appointment ' in favor of another round of golf ' who would know?
- With regard to financial health, most American's have slipped into the habit of trusting a Broker. But the $50 million annual advertising campaigns, which are common for most of the national brokerage firms, make presentations that suggest that their representatives were trained ' from birth ' to look out for the best interests of clients. But Brokers are salespeople, by design. A `Sales Practices Code' regulates Brokers, and therefore they do not extend fiduciary responsibility toward their clients, unless they elevate their credentials to those of a Registered Investment Advisor Representative, which requires additional licenses, training, and experience.
Everyone's financial health is critical. And therefore it is essential to be aware that only those who function (legally) as a fiduciary are bound by the higher standard of placing your best interest first.
Fiduciary. An important word, with an unambiguous meaning. Who should settle for less, in their financial life?
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