When making a will, creating a trust or sometimes simply investing your money, you may come across someone using the term “fiduciary.” What does it mean?

A fiduciary is an entity – a bank, attorney, title firm, stock broker, financial advisor or others – who acts in the best interests of their client in situations that require total trust and honesty. For example, a fiduciary financial advisor can buy and sell securities on your behalf without your consent.

A fiduciary standard of care

Because of this trust, a fiduciary is held to a higher standard of care than a financial advisor.

A financial advisor may work to a suitable standard of care. A financial advisor must have an adequate reason to believe their decisions will benefit the client's financial standing. This means they give advice suitable to your financial situation.

They must perform reasonable diligence and disclose any conflict of interest. They are paid either via a fee, via commission on sales or a combination of both. They can also receive fees from financial institutions for selling their products.

A fiduciary can only be paid via a fee. They must also:

• Act with undivided loyalty to the client
• Provide full and fair disclosure of all material facts
• Avoid any conflict of interest such as making a profit from one investment over another
• Avoid using client's assets for their own benefit or benefit of other clients

Conservative investments

Fiduciaries are compelled to invest conservatively and not take risks. Their purpose is to maintain wealth, not to beat market expectations or make risky investments.

Certified financial planners, registered investment advisors and fee-only advisors typically meet the fiduciary standard of care, although they are not required to do so.

When seeking out a fiduciary to care for your finances or property, it's important to ask – and for you to understand – the level of care they will offer.