Ever had a loved one ask you for financial advice?

Suppose your mother, or someone else with whom you have a close, caring relationship, were to ask for your advice in an area in which you are an expert, but about which she knows relatively little. She needs your help in making a decision, and she completely relies on your judgment. She feels no need to second-guess or verify your informed opinion because she trusts you. For your part, you are going to give her absolutely your very best advice, because she is your mother.

Mom probably refers to you simply and proudly as her child, but in the financial advisory world, you might garner a fancier, legally sophisticated title. 

You are, in fact, a fiduciary.

A fiduciary is someone who advises another individual, always putting that individual’s best interest ahead of his or her own.

When it comes to giving advice in this way, there’s a lot to know: what it means to be a fiduciary, for example, and under what circumstances a person is either required or expected to act as one. 

In today’s struggling environment, when it can seem like the only thing lower than consumer confidence is the return on a consumer’s 401(k), fiduciary standards for financial advisors become more important than ever. 

Fortunately, there is good news for the consumer wondering how to find advisors who practice by such standards. In May 2007, CFP Board – the organization that awards the CFP® certification to Certified Financial PlannerTM professionals – issued its revised Financial Planning Practice Standards. These standards require CFP® professionals who provide comprehensive financial planning to do so in the capacity of a fiduciary.

This relatively recent establishment of a fiduciary standard was an important step for consumer confidence. Because of their choice of a profession that emphasizes relationships and a comprehensive understanding of their clients’ needs, a fiduciary responsibility is key component of the ethical requirements of a CFP® professional’s practice. Indeed, the call for this higher standard of practice came from the profession itself:  the revised Practice Standards were drafted by practitioners and broadly circulated to the financial planning and services community for comment and input.

As a consumer, you also have a role to play in making these fiduciary standards an integral and visible component of the financial planning process. Here are a few keys to remember.

  • Become educated as to what you can and should expect from professional relationship with a Certified Financial Planner™ professional. You should, for example, expect clear communication and explanation of the advice you receive, as well as full and fair disclosure of all material facts relating to the advisor’s services, the form and amount of compensation, and any conflicts of interest that might affect the basis of the advisor’s recommendations. 
  • Know what questions to ask when interviewing a prospective advisor to determine whether he considers himself a fiduciary.You can find a list of these questions on CFP Board’s consumer website, letsmakeaplan.org.
  • Be aware that well-qualified financial professionals are often subject to enforcement actions for violations of code.In the case of CFP® professionals, this includes the possible revocation of their certification

While the question of “what is a fiduciary?” has inspired intense and highly technical discussion among regulators, legislators, and financial service providers, CFP® professionals and consumers know that the answer can, in fact, be pretty simple.  Just ask a mom.