Function: adjective

Etymology: Latin fiduciarius, from fiducia confidence, trust, from fidere

Date: circa 1641: of, relating to, or involving a confidence or trust: as a : held or founded in trust or confidence b : holding in trust c : depending on public confidence for value or currency

If you enjoy keeping up with the happenings of congress, you probably know this little 9 letter word has been the source of contentious debate for years now. Should anyone who delivers financial advice to you be required to put your best interest first?

Excuse me?!? Should that even be up for debate? Well, unfortunately for the consumer, it is. Some members in the industry want the standard to be “suitability” while the others demand “fiduciary”.

Consider this example, courtesy Liz Pulliam Weston: An individual has $10,000 to save for retirement. What does he do?

One financial professional, a fee-only planner, he sees advises to invest in a low-cost index fund. They remain invested for the next 30 years earning 8% annually. This person will have accumulated over $1.1 million for retirement at the end of this period.

The next professional they see, a fee-based advisor, recommends a similar product, but it has higher fees to the investor, pays a nice commission to the advisor and is promoted by the financial services firm of the advisor. The annual net return of this product is 6% once the higher fees are accounted for. At the end of the 30 year period, this account is work a little over $800,000. A $300,000 difference.

Were both professionals doing the right thing for the client? According to the standards they are upheld to, yes. The product offering the higher fees and commission may easily have been “suitable” for the investor and his retirement goal. It was geared for long-term growth, not too risky, etc. It’s just the planner held to a fiduciary standard is bound by a legal obligation to do what is right for the client, even when it may be at odds with his own self-interest.

As you can see, not all advisors/planners are created equal. Take this brief true/false quiz and see how you do at knowing the details behind the scenes.