What is fiduciary responsibility and how is it relevant to you?1 min read . Updated: 14 Feb 2019, 08:15 AM IST
- A fiduciary is a person or an entity entrusted with the responsibility to take care of money or other assets of its clients
- As a fiduciary, a person is legally answerable to the client
Fiduciary responsibility means the legal obligation of a person or an entity to act in the best interest of its client. A fiduciary is a person or an entity entrusted with the responsibility to take care of money or other assets of its clients. For example, the trustees of a mutual fund have a fiduciary duty to protect and further the interests of investors.
As a fiduciary, a person is legally answerable to the client. It’s, therefore, important and critical to understand whether your advisor or distributor has a fiduciary responsibility towards you. For example, a life insurance agent represents the interest of the insurance company and doesn’t have any fiduciary responsibility towards you. This puts you at a greater risk of a missell as agents can be sales driven and focus on commission-heavy products even when they don’t suit you. However, agents also have to abide by a code of conduct laid down by the insurance companies.
Compared to an agent, a financial advisor is entrusted with a fiduciary responsibility and, therefore, has to keep your interest paramount. This includes offering advice keeping your risk profile in focus and after a proper analysis of the options available.