What is a Fiduciary and Why Do I Need One?

A “fiduciary” is responsible for taking care of another person’s financial best interests; it’s important to have an ally with a “fiduciary duty” so you know your finances are supported and protected.

A clear understanding of the term “fiduciary” is essential for sound financial decision-making. It’s a term that’s been around for centuries and has a very specific meaning—but until it’s time to actually consider whether or not you should have a fiduciary, the exact definition of that title and what it means might not be crystal clear. Here, we walk you through what a fiduciary duty is, fiduciary services, who can label themselves as a fiduciary financial advisor, the various services they provide, and the importance of having this person by your side.

Fiduciary Financial Advisors

All fiduciaries are financial advisors, but not all financial advisors are fiduciaries. A fiduciary is a person that has been given the power to act on behalf of another in order to protect their financial and/or health care wellbeing. A fiduciary must act in a way that will benefit someone else and not necessarily themselves (whereas a financial advisor might urge you to invest in something that might benefit their own interests as well as yours.)

Fiduciaries have a higher bond of trust with clients and are required to avoid conflicts of interest. They only get involved with investments that are the best fit for their clients.

What is Fiduciary Duty?

A fiduciary duty requires the highest standard of care and trust available under the law. If your financial advisor is not a fiduciary, they are able to recommend investments that pay them a bigger commission and might not be best for you. If your financial advisor is a fiduciary, they’re prohibited from doing so.

What Can a Fiduciary Help Me With?

Fiduciary services include but are not limited to conservatorships and guardianships, financial power of attorney (POA), medical power of attorney (MED POA), trustee and trust protector. Let’s take a quick look at each of these categories.

Financial Power of Attorney (POA)

You see this in the movies a lot, when someone dramatically announces, “I have power of attorney!” But what does that really mean? The financial power of attorney is a legal agreement that allows you to appoint someone to manage your finances, your properties and all of your assets. POA does not go into effect until you are either physically incapacitated (for example, you are in a coma) or mentally incapacitated (for example, suffering from dementia or Alzheimer’s). Tasks that fall under the POA umbrella include paying bills, making deposits, handling insurance benefits, and dealing with unexpected financial burdens.

Medical Power of Attorney (MED POA)

Medical power of attorney is granting the authority to make healthcare decisions on your behalf. As is the case with POA, Med POA does not go into effect until you are mentally or physically incapacitated. While both the POA and MED POA are known in legal terms as being part of “advance directives,” these two roles are normally created in separate legal documents. “Advance directives” is an umbrella term that also includes Do Not Resuscitate (DNR), Physician Orders for Life Sustaining Treatment (POLST), Living Will, and organ/tissue donation.

Conservatorships

A conservatorship is a legal term referring to when an individual is appointed by the court to assist an incapacitated adult or a minor with their financial and personal affairs.

Guardianships

One person can serve both conservatorship and guardianship roles, but guardianship is different in that it involves the appointment of a person to oversee the physical and medical care of an individual as opposed to the finances.

Executor or Personal Representative

A personal representative, often referred to as an executor, is an individual or group that has been designated to administer the estate of a decedent. The executor is bound to settle and distribute the assets of the estate in an efficient and timely manner—and most importantly, adhere to the instructions as outlined in the decedent’s last will and testament.

Trustee

A trustee is a fiduciary who acts as custodian for the assets held within a trust. They also assume financial responsibility for managing those assets and carrying out the intents and purposes of the trust. These responsibilities can entail keeping records of expenses and income, distributing funds to beneficiaries, handling tax returns and keeping a comprehensive record of any and all transactions that affect the trust.

Trust Protector

A trust protector is an individual who has been given administrative powers under a trust instrument. The key difference between a protector and a trustee is that the trustee holds the assets of a trust while the protector does not.

This individual is also someone who is not the settler, beneficiary, or trustee. Another way to look at this is to remember that the trust protector’s role is essentially to supervise the trustee.

You can learn more about many of these different roles in greater detail by reading our article “What are the Differences in POA, MED POA, Guardianship, Living Will, and Will?”

How Much Money Do You Need to Have a Fiduciary?

As is the case with just about any expense imaginable in human experience, the cost of a fiduciary varies depending on different factors. Some fiduciaries will charge a flat fee that would typically fall in the range of five figures, while others favor charging a percentage of the client’s assets, usually around 1% per year.

Why Does Someone Need a Fiduciary?

Many will ask “is it worth it having a fiduciary?” and “do I need a fiduciary?” That answer is also different for everyone. However, with fiduciary services, you can trust that your financial advisor or related representative is protecting your interests and is legally bound to do so.

In some cases where government benefits are granted, a fiduciary may be required. For example, if a recipient of VA Aid and Attendance Pension Benefit has dementia, the VA will require them to have a fiduciary to receive the money and ensure it is going towards their care.

We have numerous other resources for seniors and their families, ranging from care options to financial, veterans' assistance, and more. If you or your loved one is also considering insurance options, make sure to check out our article “What is Long-Term Care Insurance and What Does it Cover?”

Find Senior Care Near You

As you consider the benefits of hiring a fiduciary, you might also be interested in the various options for senior living. There are many to choose from, providing everything from general support to specialized care. Learn more about senior living communities near you and get your questions answered with the help of Referah’s Family Connection Agents.