What is a fiduciary and why is it important to work with one?

A fiduciary is a person or organization that acts on behalf of another person or persons, and in our case, as it applies to investment management. Essentially, a fiduciary owes to that other entity the duties of good faith and trust. The highest legal duty of one party to another, being a fiduciary requires being bound ethically to act in the other’s best interests. Most advisors tailor their investment advice to individuals’ clients they work with, however, not all advisors are governed by the same standards. Fiduciary advisors work directly for clients and must place clients’ interests ahead of their own, according to the Investment Advisers Act of 1940. For example, advisers must do their best to make sure investment advice is made using accurate and complete information and that the analysis is thorough and as accurate as possible. Avoiding a conflict of interest is important when acting as a fiduciary, which means that advisers must disclose any potential conflicts. Advisors who are not a fiduciary, however, serve the broker-dealers they work for and must only believe that recommendations are suitable for clients. This suitability standard is set by the Financial Industry Regulatory Authority (FINRA).

At Kraus Capital Management, we uphold the fiduciary standard. Our advisors are CERTIFIED FINANCIAL PLANNER™ and Investment Advisor Representatives, which binds them to the Fiduciary standard through the CFP® Board Code of Ethics and Standards of Conduct as well as the Investment Advisers Act of 1940.