As Canadians finances are continuously under pressure, more are choosing to file a Consumer Proposal…
You might have heard the word fiduciary thrown around in a conversation at a party or if you’ve ever looked for a financial advisor. But, do you know what the term really means? This article will provide a definition of fiduciary duty, what it is, and why it’s important to understand what it means.
What is Fiduciary Duty?
“Fiduciary” is a complicated-sounding word for a rather straightforward concept. A fiduciary is a person or organization that acts on someone’s behalf and has an ethical and legal obligation to put their clients’ interests ahead of their own. When you have a fiduciary duty to someone, it simply means that you must act in a way that will benefit them without thinking about what’s best for you.
In short, you act in that person’s best interest.
What is a Fiduciary Relationship?
The Canadian courts suggest that a fiduciary relationship exists when:
- The fiduciary can exercise their discretion or power over the beneficiary
- The fiduciaries decisions affect the interests of the beneficiary
- The beneficiary is in a vulnerable position and is somewhat reliant on the fiduciary
Examples of common fiduciary relationships include:
- Financial advisor/investor
- Licensed Insolvency Trustee (LIT)/client
When you look at these examples, the fiduciary duty makes sense. You never want to go to your family doctor and have to question whether or not they will treat you based on what is in your best interest. It’s just assumed. It’s an expectation that your lawyer, doctor, or parent is looking out for what will serve you best, not what’s in it for them. Unfortunately, this is not always the case in certain fiduciary relationships.
Example of a Fiduciary Relationship: Financial Advisor
To illustrate this concept with an example, let’s turn to the world of finance. If you’re ever in a position where you are trying to choose a financial advisor, understanding the difference between a regular financial advisor and a fiduciary financial advisor is important.
A financial advisor is a term that can be applied to any individual who provides financial advice and helps you to manage your money. Financial advisors are not bound to a fiduciary duty. Which, when you start to think about it, seems a little absurd.
This means that the person who you hire to help you manage your money is not required to put your interest ahead of their own. If you’re a little confused by this, you’re not alone.
This is not to say that all non-fiduciary financial advisors are acting against your best interest but, there’s a chance. If a financial advisor is not a fiduciary, they might be inclined to recommend financial products that score them a bigger commission but aren’t necessarily the best product for you.
On the other hand, a fiduciary financial advisor is ethically and legally required to put your best interest ahead of their own. In an ideal world, this would be the standard way to do business. Before working with a financial advisor, make sure you ask about their fiduciary duty and inquire about what they do to put client interests first.
Example of a Fiduciary Relationship: Licensed Insolvency Trustee
Unlike most financial advisors, who are not bound by fiduciary duty, a Licensed Insolvency Trustee (LIT) is obligated by the Bankruptcy and Insolvency Act to act “honestly and in good faith.”
An LIT is bound by a Code of Ethics which establishes standards for service. For example, standard 34 in the Code of Ethics for Trustees states, “Every trustee shall maintain the high standards of ethics that are central to the maintenance of public trust and confidence in the administration of the Act.”
The Code of Ethics presents a series of specific rules that each LIT must follow. Unlike in the financial advisor example, there is no decision to be made between fiduciary or non-fiduciary. All LIT’s are held to the same code.
Why Does Fiduciary Duty Matter?
In the context of a financial advisor, the fiduciary duty matters because it can affect your bottom line. If your advisor is selling you financial products that will net them a larger commission instead of products that will make you more money, then you will end up with less money.
In the context of an LIT, the fiduciary duty matters because the LIT is responsible for dealing with some of the most high stake financial situations – Personal Bankruptcies and Consumer Proposals.
Licensed Insolvency Trustees work with people who are in very vulnerable financial and personal situations. Anyone who has lost nights of sleep or had relationships end due to extreme debt or other financial issues can attest to this.
Without the promise of trust and good faith, would you feel comfortable handing over the most intimate details of your finances? Would you trust their advice? Would you put your financial future in their hands?
Luckily, an LIT is there to support you and to work with you to find the best possible solution to your debt problems. You never have to worry about an LIT putting their interests ahead of yours for the purpose of making more money, as LIT fees are regulated by the federal government.
Does a Licensed Insolvency Trustee Have a Fiduciary Obligation?
Yes, a Licensed Insolvency Trustee has a fiduciary obligation and this is what you want to hear. If you are in a difficult financial position and considering filing for personal Bankruptcy or a Consumer Proposal, you want to work with professionals who have a fiduciary obligation. You want to be able to ask for help when you need it the most and trust the person who is advising you.
Reach Out to a Licensed Insolvency Trustee
If you have questions about the fiduciary relationship between an LIT and a client, contact us today. At Adamson and Associates, you can schedule a free consultation with an LIT to discuss your financial situation and inquire about the various financial supports that are available. You don’t have to deal with your debt alone. Reach out to a LIT today at 519-310-JOHN (5646), or contact us online.