Quick Answer: What Is Fiduciary Responsibility In Plain English?
Fiduciary responsibility is a legal and ethical obligation that requires a financial advisor to put your interests ahead of their own interests or their firm’s profits when giving investment advice. It means your advisor cannot recommend something that benefits them more than it benefits you. At Godsey & Gibb, every wealth advisor is a fiduciary 100% of the time when providing advice (not just for certain accounts or certain products).
Here is a concrete example of fiduciary duty in action:
Say you are approaching retirement and desire income from your portfolio. Your advisor has two options: a low-cost bond portfolio with transparent fees, and a high-commission product that would pay the advisor significantly more. Both could technically serve your needs. A fiduciary must recommend the one that is clearly in your best interest, even if it means earning less compensation.
What Is a Fiduciary In Wealth Management?
A fiduciary is a person entrusted with managing another person’s money or financial decisions, bound by duties of loyalty and care under U.S. securities law. Advisors must register with the Securities and Exchange Commission or state regulators, and the SEC regulates fiduciary standards for those advisors. Fiduciary advisors must provide accurate and complete information and avoid conflicts of interest, or at minimum disclose them fully. Fiduciary responsibility for financial professionals includes duties such as loyalty, care, ongoing portfolio monitoring, prudence, and impartiality.
For pre-retirees, the fiduciary obligation directly influences real decisions your advisor makes: how much to keep in fixed income versus equities, when to realize capital gains, how to sequence withdrawals from IRAs versus taxable accounts, and how to coordinate income with Social Security are all relevant examples.
How To Tell If Your Financial Advisor Is Truly a Fiduciary
Titles like financial advisor, financial consultant, wealth manager, financial coach, and financial planner are not regulated terms. Not everyone using these titles will operate under fiduciary standards. To verify if your financial advisor is a fiduciary, you can ask them directly about their fiduciary duty and conflicts of interest, review their Form ADV on the SEC’s IAPD database, or check FINRA BrokerCheck for their registration status.
Common Conflicts Of Interest, Even When An Advisor Is a Fiduciary
Being a fiduciary does not automatically mean being conflict-free. Fiduciary advisors must avoid conflicts of interest, but structural incentives at many firms can still influence investment recommendations, sometimes in ways that are hard to see.
Here are common types of conflicts that may exist for a fiduciary advisor:
- Proprietary funds and model portfolios: Some firms own their own funds and motivate advisors to use them through bonus pools, internal scorecards, or payout grids that compensate the advisor more for selling in-house products.
- Outside investor pressure: Large national firms and bank-owned wealth managers may have shareholders or private equity investors who expect high-margin, scalable services. This can indirectly motivate advisors to spend less time on each person, sell additional services like debt products, and focus on volume over depth.
- Insurance-linked compensation: Firms that also act as insurance agents may design pay structures that reward selling annuities, whole life policies, or managed accounts with higher embedded expenses and fees.
One way to learn about these conflicts is to ask your advisor for a clear, written explanation of every way the firm and the advisor are paid, including any third-party payments, product-related compensation, and bonus tiers tied to specific securities. It may be difficult to learn about outside investor pressure from your advisor, but you may be surprised what you learn simply by asking.
How Godsey & Gibb Reduces Conflicts and Acts As Your Long-Term Fiduciary Partner
Godsey & Gibb is a Registered Investment Adviser whose wealth advisors are fiduciaries. Our business model is structured to eliminate the common conflicts described above, so your money and your plan stay aligned with your goals.
We have no proprietary investment products of any kind, so our Wealth Advisors are only incentivized to use the products that best serve your needs. There is no third-party private equity owner or parent company pushing for shorter meetings, cookie-cutter portfolios, or higher-margin cross-sells. We do not run separate lines of business such as insurance, mortgages, or retail banking. Our Wealth Advisors’ only compensation comes directly from clients through our Assets Under Management (“AUM”) fee structure.
Our synchronized service model brings investment management, financial planning, and tax strategy/preparation under one roof. CPAs and Wealth Advisors collaborate so that your portfolio, taxes, retirement income, estate planning, and charitable giving goals are all aligned instead of handled in silos where one advisor does not know what the other recommended.
Reach Out To Learn More About Our Wealth Management Services
We invite you to schedule a conversation with a Godsey & Gibb Wealth Advisor – we would be happy to review your current advisor’s fiduciary status, fee structure, and conflicts. Understanding how your investing decisions are shaped by your advisor’s compensation is one of the most important steps you can take in personal finance.
Ask harder questions of any financial professional you work with, and when you are ready, consider partnering with a firm that does not just claim fiduciary responsibility, but builds its entire business around it.