What is a fiduciary?
In simple terms, a “fiduciary” is someone who must, by law, act in the best interest of their clients. It seems like common sense, but let’s first understand the difference between a fiduciary standard and a suitability standard.
A financial advisor such as a stockbroker or insurance agent may only be held to a suitability standard. This means that they only need to provide you a suitable solution, but it doesn’t necessarily have to be the best option.
For example, an advisor may sell you a mutual fund or insurance product that they get paid a commission on. It may be a good product for you, but there may be less expensive options available. Can you see where this advisor may be biased towards products that earn him a commission?
By upholding a fiduciary standard, financial professionals are required to give you advice that is in your best interest only.