What Is a Fiduciary Responsibility for Financial Advisors?
Wednesday, May 19, 2021
Section: Financial Advisors

Financial advisors are a lifeline for many Americans who would like to get a better grasp on investments, their income, as well as budgeting expenses. These individuals place a lot of trust in these professionals and expect them to act in a way that is in their best interest at all times. However, financial advisors have responsibilities under the law that applies to their clients as well. In this blog, we’ll cover the fiduciary responsibility for financial advisors, what it means, and the power of an advisor when dealing with life settlements. 


What is Fiduciary Responsibility?

Financial professionals are generally governed under two different entities - the Securities and Exchanges Commission (SEC) and the Department of Labor (DOL). Each entity requires professional members to take on fiduciary responsibility for their clients. In legal terms, a fiduciary is an individual that has taken on the responsibility to act in the best interest of their clients, customers, or stakeholders. 
Under the Securities and Exchange Commission, fiduciaries offering investment advice are required to disclose any conflicts of interest that may arise at that time. Advisors cannot engage in any acts that would be considered fraudulent, deceptive, or manipulative when dealing with and advising clients. The fiduciary responsibility of being an investment advisor is focused on being as clear and transparent as possible while providing investors with a full scope of what may come with the investment they desire.
The Department of Labor lays out a fiduciary responsibility that is a bit different. While the SEC applies strictly to investment advice, the DOL defines fiduciary a bit more generally. Simply put, anybody who offers investment advice to a retirement investor is considered a fiduciary. A ‘retirement investor’ could be an employee contributing to their 401k or any other retirement fund. An advisor is simply anyone who advises these investors on retirement decisions. Under the DOL, these advisors are required to eliminate any conflicts of interest that may be associated with the advice that they provide. This restricts what financial advisors may say to a client, but also protects the client from undue influence or any interests the advisor may have in their retirement decisions.

How Does this Apply to Life Settlements?

Life settlements are considered retirement advice under the Department of Labor. Thus, financial advisors are fiduciaries and have a responsibility to ensure that the consumer is making the best decision to their knowledge. This is important to note for consumers, so they can keep a clear head and an open heart when trusting a financial advisor with an asset as important as their life insurance policy. Under the DOL, financial advisors have an immense fiduciary responsibility and can potentially lose the ability to practice if they mishandle this responsibility. 


Hiring a financial advisor is a smart decision for any consumer looking to sell their life insurance policy and receive proceeds from it. With the rules and regulations surrounding life settlements,  it may be difficult for the common person to understand everything that is required of them without a licensed professional guiding them every step of the way. Trusting someone with such a large decision can be intimidating, but it doesn’t have to be. Consumers should only be dealing with advisors that are fiduciaries and have the responsibility to keep their clients in good hands while giving them the most sound advice to achieve financial success.