Knowing what a fiduciary is and why it is important can help your retirement account grow more efficiently.
When hiring a financial advisor, one of the first things you should find out is if he or she is fiduciary. But what is a fiduciary, and what does the term mean?
According to the Oxford dictionary, a fiduciary, in the simplest of terms, is a trustee. In fiduciary relationships, one person or entity manages assets on behalf of another.
Fiduciaries are legally bound to act in the interests of those who trust them with their assets. This means that they must put the interests of their clients ahead of their own, avoid conflicts of interest, and act prudently and responsibly with the assets under their control. Here are some of their duties:
Managing assets
Fiduciaries are important because they play a critical role in managing assets for individuals, organizations, and companies. They are often appointed to manage retirement assets, typically held in retirement accounts such as 401(k)s, IRAs, and pension plans. In this role, fiduciaries are responsible for ensuring that retirement assets are managed in a way that meets the needs and objectives of the retirement plan participants.
Because retirement assets are typically the primary source of income for retirees, fiduciaries are extremely important. These assets are critical for ensuring that retirees can meet their living expenses, cover medical costs, and maintain living standards throughout their retirement years.
Make sure retirement goals are being met.
In retirement planning, a fiduciary ensures that retirement assets are invested according to the plan’s goals and objectives. This means the fiduciary must carefully evaluate investment options and select appropriate ones for the plan participants.
Rebalance portfolio
In addition, fiduciaries must monitor the performance of the investments and make adjustments as necessary to ensure that the investments remain consistent with the plan participants’ goals and objectives. This can involve rebalancing the portfolio, reallocating assets, or making other changes to ensure that the investments continue to meet the needs of the plan participants.
Make sure their account is being managed cost-effectively
Another important responsibility of fiduciaries is ensuring that retirement assets are managed cost-effectively. This means that the fiduciary must carefully evaluate the fees and expenses associated with various investment options and select the most cost-effective option for the retirement plan participants.
Have a legal obligation to work in your best interest.
Fiduciaries are also legally obligated to act prudently and responsibly with the assets under their control. This means that they must carefully manage and protect the retirement assets, avoid conflicts of interest, and always act in the best interests of the retirement plan participants.
Make sure fees and plans are transparent.
Fiduciaries need to inform retirement plan participants about the investments and fees associated with their retirement accounts clearly and transparently. This can help plan participants make informed decisions about their retirement assets and ensure they can achieve their retirement goals.
Meet government requirements
In addition, fiduciaries must comply with several legal requirements, including the Employee Retirement Income Security Act (ERISA), which sets standards for retirement plans and the fiduciaries that manage them. These requirements are designed to protect the interests of retirement plan participants and ensure that fiduciaries are held accountable for their actions.
Overall, fiduciaries play a critical role in managing retirement assets and ensuring that retirees can achieve their retirement goals. By acting in the best interests of retirement plan participants, avoiding conflicts of interest, and managing retirement assets prudently and responsibly, fiduciaries can help retirees achieve a secure and comfortable retirement.