Financially Speaking Podcast

Best Interest

Published on November 24, 2015

Imagine that you are the captain of a whaling ship in the 18th century. The financial benefits of successful trips generated significant wealth, but the downside was leaving your family and property for months on end. You need a reliable, trustworthy person to manage your wealth in your absence. Imagine also farmers who left their property to someone else when they traveled for weeks or months to market.  Since traveling was slower back then, people of wealth needed reliable financial management during their absence. 

That reliable person was a fiduciary. As you can imagine, at times there were differences of opinion of proper decisions. Consequently, fiduciary capacity has evolved over the centuries based on court decisions and governmental law. I can hear the attorney now, "Why did you plant corn instead of wheat when corn prices were so low?" or "Why didn't you plant tulips instead of leaving money in the bank at no interest?" The issue was prudent decision making. 

Other fiduciary issues revolve around conflicts-of-interest. "Why did you buy tulip bulbs from your cousin?" or "Tell us about the gift your uncle gave you for buying his corn seed."

A fiduciary has the duty to act in the best interest of another person, and the standard of care is based on presumed knowledge and experience of the fiduciary.  The onus on is on the advice giver; not on the advice receiver.

In today's world, people have control over wealth like never before, primarily through 401(k) and IRA accounts.  These people must rely on advisers who have the knowledge and experience to guide them through the many and complex financial decisions to make their wealth last a lifetime. Some advisers are salesmen whose loyalty lies with their employer.  But some advisers are fiduciary advisers whose loyalty rests on the best interest of their client.

Barry M. Corkern & Company is a fiduciary adviser.

Tags: fiduciary adviser; fiduciary capacity

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