May 16, 2024

We’re Fiduciaries – What Does That Mean for You?

According to the Consumer Financial Protection Bureau (CFPB), in the simplest terms, a fiduciary is someone who manages money or property for someone else. In the financial planning and investment industries, fiduciary financial advisors accept fiduciary duty. This means that they have a legal responsibility for duties of care, loyalty, good faith, confidentiality, prudence, and the duty to disclose, all while serving the best interests of their clients.

In this article we’ll explore what being a fiduciary firm means at Crossover Capital.

The 6 Duties of Fiduciary Financial Advisors

The legal and ethical obligations of a fiduciary advisor related to protecting the best interests of a client are broken into six main duties:

  1. Duty of Care – the responsibility to inform oneself as completely as possible and conduct a careful examination of all available information in order to exercise sound judgments that protect a client’s interests.
  2. Duty of Loyalty – must act in the best interest of the client at all times. Their well-being must be first and foremost, and a fiduciary must excuse themself from situations where a conflict of interest may arise.
  3. Duty of Good Faith – must always act within the law to advance the interests of the client. At no time should the fiduciary take illegal actions.
  4. Duty of Confidentiality – must maintain the confidentiality of any and all information related to the client. Any form of it – whether written or spoken – cannot be used for their own personal gain.
  5. Duty of Prudence – must make decisions for their client with the highest degree of professional skill, caution, and awareness of risk.
  6. Duty to Disclose – must engage in completely honest behavior, disclosing all relevant information at all times.

When a fiduciary advisor fails to honor the above duties, it is known as a breach of fiduciary duty. Common examples of this include account churning (making excessive trades to earn commissions), misrepresentation, unauthorized trading, and acting negligently.

The Relationship Between a Fiduciary Financial Advisor and Client

At Crossover Capital, we are a registered investment advisor (RIA) with the U.S. Securities and Exchange Commission (SEC). This means that we’re required to act as full-time fiduciary.

When you work with a financial advisor, in essence you are giving them access to your investable assets. In these relationships, an advisor can be granted discretionary control of your assets, which simply means that they can manage day-to-day trading and rebalancing of your accounts without having to bother you with a phone call to confirm every trade. This makes having a fiduciary advisor crucial, as you can rest assured that your advisor is making investment decisions that are in your best interest.

In general, fiduciary financial advisors have fewer conflicts of interest. Legally they must disclose any potential conflicts of interest that they may have. So if a fiduciary advisor recommends a specific insurance policy, you can trust that they believe it’s the correct one for you.

Another advantage to working with a fiduciary is the legal recourse it provides, which may offer you greater peace of mind. Breach of fiduciary duty carries legal consequences, including lawsuits, penalties and loss of the fiduciary’s professional credentials.

Another distinction between financial advisors is that they can be either fee-only or fee-based. To learn about the differences between the two, please check out our article, “We’re a Fee-Only Firm – What Does That Mean for You?

How We Can Help Build Results for Our Clients

Building a foundation for success starts with steady support and a customized approach. Crossover Capital is here to provide the necessary tools required for growth and to be a champion for our clients’ success.

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This material is intended for informational purposes only. It should not be construed as legal or tax advice, and is not intended to replace the advice of a qualified attorney or tax advisor. This information is not an offer or a solicitation to buy or sell securities. The information contained may have been compiled from third party sources and is believed to be reliable.

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