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Triangle An Introduction to Fiduciary 101—What is a Fiduciary?

Published on: October 29, 2014

 

Recently I conducted an informal and unscientific poll about the word “fiduciary.”

I asked several people, “What is the definition of fiduciary?” The answers were very revealing.

Overall, the general population (of informally and unscientifically solicited individuals) does not know if “fiduciary” is a noun, verb, adjective or expletive.

Here are some of the interesting and/or incorrect highlights:

Something that is false.
Frugal.
I have no clue what a fiduciary is.
Describes someone with a type A personality, meaning particular. As in “she has a very fiduciary manner of arranging silverware both in the drawer and on the table.”
I really have no idea what that word means.

It isn’t surprising that most people outside of the financial world do not know what a fiduciary is; however, you are not most people. Because you found your way to this blog, I’m guessing you have an inkling of the meaning or you yourself could be a fiduciary.

Simply stated, a fiduciary is a person or institution given the power to act on behalf of another or make decisions in situations that require great trust, honesty and loyalty. In the context of finance, it refers to a person or persons who have control over someone else’s money. Other examples of fiduciaries you may already be familiar with include accountants, attorneys, bankers, business advisors, mortgage brokers and real estate agents. These individuals are hired to act in the best interest of their trustees and must set aside their own personal motives in favor of the goals of the plan they manage.

Although the definition varies based on context and industry, at Nicklas Financial we define a fiduciary as:
Any individual or entity that has or exercises discretionary control over a 401K or defined contribution plan or its assets. A plan may have more than one fiduciary and a plan may have an individual serving in more than one fiduciary capacity.

So, did you define it correctly? Based on the definition, could you have also said, “A fiduciary is me”?
With thousands of fiduciaries in the world and many different fiduciary roles and functions, there is a wide spectrum in the quality of fiduciaries ranging from excellent to poor. Some fiduciaries are not operating at the level plan participants need them to be, whether due to lack of education, time and/or motivation.

Here at Nicklas, we want to see excellent fiduciaries in the marketplace — those who not only understand and fulfill their legal obligations but also have a strong understanding of the importance of their role and the desire to provide truly meaningful benefits for plan participants. To us, it’s all about being a good steward.

Stewardship is not a trait that comes easily to everyone but we believe it can be learned. To that end, we’ve decided to “practice what we preach” and model what good stewardship can look like by sharing our decades of fiduciary knowledge through a blog series aimed at your fiduciary education. We hope our model of investing in you not only inspires you in your fiduciary roles but also helps make you better equipped to make well-informed and well-weighed decisions.

We hope you’ll join us on this journey. As always, if you have a question, don’t hesitate to submit it on our Q&A page or get in touch with us directly.


Written by Kenny Nicklas
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