(865) 357-7370 kim@sdp-planning.com

In the simplest terms, a fiduciary is a person who holds your best interest as his or her utmost responsibility.  

SDP has operated as fiduciaries for financial planning and for all third party money management we have done since we began our business. With regard to the sale of insurance products, companies have to file their products with the state for approval to sell.  Those products cannot be changed by broker or agents.  When we sell insurance or commissionable products we disclose that we are paid a commission.  We cannot waive or otherwise change how the product is filed, which includes the payment of a commission.  Best interest and not highest commission still rules.

However, under the law governing financial advisors, a fiduciary relationship will automatically exists in certain circumstances as of April 2017.  Beginning in April 2017 all financial advisors who “roll” retirement accounts (401K, 403b, etc) out of an employer’s company plan and into an individual IRA have to do so in the “best interest” of the client.  Under prior law, advisors only had to meet “suitability standards” which is a completely different standard.  Something can be “suitable” but not in your “best interest”.  

For example, an advisor and you determine that a certain type of investment for your IRA is what you need because it meets your risk profile, timeline, etc.  There are many investments that meet those criteria, but the advisor selects from among those that pay the most money to the advisor.  This often happens when an advisor is employed by a company that has its own products to sell.  The advisor under the old rules could sell those products and nothing else and it was legal under the “suitability” rule.  However, that could be considered a conflict of interest under the new rules.  How can the advisor act in our best interest when the advisor only has one company’s products to sell?  Often bonuses or increased compensation are given for certain levels of sales of particular products.

That kind of transaction could be a completely suitable investment but it may not be in your best interest if the higher payment to the advisor results in less money going into your investment, or if the advisor did not have a broad array of similar, competing, investments to consider.  

The fiduciary relationship has meaning it is welcomed by those who have acted as fiduciaries in the past and those who want to act in the best interest of their clients.