Benefits of a Personal Fiduciary

By on January 31, 2014
Wealth Management

What is a Personal Fiduciary?

A personal fiduciary is an individual or entity that is legally authorized to manage your assets on your behalf, such as a family member, registered investment advisor (RIA) or private bank or trust. In this role, the appointed party is authorized to make decisions regarding the investment of your assets, should you be incapable of making such decisions yourself, and also functions as the conservator and executor of your estate. Seniors often choose to designate a personal fiduciary—also known as a private trust or private wealth management service—to protect their assets and the interests of their beneficiaries.

Who Should I Appoint?

Choosing a personal fiduciary you trust is essential. While family members may be appointed—and often seem like the logical first choice—many individuals choose to enlist the help of a third party instead, such as a registered investment advisor. Family members may not live locally, choosing one member over another may cause strife, or relatives simply might not have the financial knowledge required to responsibly handle an estate. By choosing a registered investment advisor, you can rest assured that your assets are in the hands of a financial professional who is required by law to act in your best interest.

How Are They Regulated?

A personal fiduciary is entrusted with a great deal of responsibility—which is why there are regulations in place to ensure that the third party you’ve appointed really is handling your assets responsibly. Firstly, the fiduciary you appoint must be equipped with in-depth knowledge of your characteristics and financial goals in order evaluate the suitability of any investment choices. Secondly, fiduciaries are forbidden from making decisions solely on the basis of personal profit. Thirdly, regulations enforced by state governments and the Securities and Exchange Commission ensure consequences for the mismanagement of your finances.

From a regulatory standpoint, a code known as the “prudent investor rule” provides the benchmark for proper fiduciary behavior, mandating that anyone handling your assets treats them as his or her own. This means that, when investing, a personal fiduciary must prioritize the preservation of assets, generation of income and financial wellbeing of your beneficiaries. Investments posing excessive risk must always avoided.

If you choose to appoint a registered investment advisor as your personal fiduciary, he or she will also be held accountable to the standard of conduct mandated by the U.S. Investment Advisers Act of 1940, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

I’ve Appointed Someone—Now What?

Because the person or entity you appoint is required to know you—and your intentions for your assets—a common first step is the creation of an investment policy statement. Clients and fiduciaries collaborate to create this document, establishing an investment strategy and setting the foundation for any decisions that will be made on the client’s behalf.  A well-written plan not only helps your fiduciary manage your assets in a pre-approved manner, but also documents your intentions so any mismanagement is more clearly evident.

What Are the Benefits of a Personal Fiduciary?

You may be wondering whether you really need to appoint someone else to manage your wealth. However, a personal fiduciary plays a vital role in protecting your assets. If, for any reason, you find yourself incapable of making your own financial choices, a fiduciary will help you maintain control by executing decisions based on prior plans you’ve shared and in-depth knowledge of your goals, values and lifestyle. This has lasting benefits not only for you, but for the loved ones you’ve named as beneficiaries.

By Chris Cooper

About Jacqueline Maddison

Jacqueline Maddison is the Founder and Editor-in-Chief of Rancho Santa Fe Magazine. She believes in shining light on the best of the best in life. She welcomes you into the world of the ultimate luxury lifestyle.

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