According to the Merriam-Webster dictionary, “fiduciary” is both an adjective meaning “of, relating to, or involving a confidence or trust,” and a noun meaning “one that holds a fiduciary relation or acts in a fiduciary capacity.”
But what does that mean in terms of your relationship with Modera? Here we’ve answered questions that may help to clarify the meaning.
What is a fiduciary relationship?
This is the highest standard of care and responsibility one person can owe to another. Our fiduciary responsibility is two-pronged and applies to the entirety of our relationship with each client, whether it’s with an individual, a couple, a family or an organization. Unlike others who offer financial services, our duty is to act as a fiduciary at all times. It is not limited only to when undertaking transactions in securities.
What are those two prongs?
There’s a duty of care and a duty of loyalty.
What does the duty of care mean?
It means that Modera’s advice has to be in your best interest. We start by gaining an understanding of what your goals are, and then deliver advice to you designed to be what will best serve your needs.
Part of the duty of care includes a duty to seek best execution of your securities transactions, which means providing the best qualitative execution, taking into consideration the full range of services provided.
And finally, the duty of care is ongoing. It’s our responsibility to monitor your financial situation regularly throughout the course of our entire relationship to make sure, as your needs and lifestyle change, that our advice and guidance adapt appropriately to address those changes.
And what is the duty of loyalty?
The duty of loyalty means that Modera cannot place its interests ahead of those of our clients. Our clients must always come first.
Here’s an example. Let’s say you ask your Modera advisor if you should pay off your mortgage early using assets from your managed portfolio. Because Modera’s fees are based on a percentage of your assets under management (AUM), it would disadvantage Modera financially if your investment portfolio were smaller.
However, because we operate as fiduciaries, if we found that it would in fact be beneficial to you to pay off your mortgage with those assets, then we would be required to recommend that strategy because we are obligated to always work in your best interest.
But let’s say instead that we concluded it wouldn’t be advantageous for you to pay off your mortgage. Modera would inform you of that too – and explain the reasons why. And we should let you know, in giving that advice, that we could be affected by your taking assets from your managed portfolio to pay off your mortgage early.
In other words, our commitment to act in to your best interests supersedes the benefit to us. Again and as always, you come first.
How are the legal responsibilities of fiduciaries enforced?
Registered investment adviser firms such as Modera are highly regulated and overseen by the Securities and Exchange Commission (SEC). The SEC will periodically examine and monitor our practices to see that we are meeting the required standards.
We are also required to provide every client with disclosure documents that describe how we do business, what we charge and our investment philosophy, among other items. We must also disclose any possible conflicts of interest.
Do all financial firms operate as fiduciaries?
No, not in the way that Modera, as a registered investment adviser, does, and in fact, they are not required to by law. Other financial services providers that are not registered investment advisers like us only have to act in a client’s best interest in certain situations.
So why does Modera?
As a registered investment adviser we are legally obligated to do so. But Modera also was founded on the principle that being entrusted with the care of our clients’ financial lives is a critical responsibility. After all, we are dealing with other people’s money. We built our firm on the belief that the only way we ethically can care for our clients is to provide a fee-only structure; promote transparency in all our communications and transactions; offer solutions and opportunities backed by research; work in our clients’ best interests and be available to counsel and support when needed. While these may sound like common practices, they are not in place at all financial advisory firms. We are proud this is Modera’s culture.
At Modera, we are committed to our fiduciary responsibility and work to maintain and offer the highest standards of financial care to our clients. If you’d like to learn more about the ways Modera puts our clients’ needs first, please contact us.
Contact an Experienced Fiduciary Near You
Modera Wealth Management, LLC (“Modera”) is an SEC-registered investment advisor with places of business in Massachusetts, New York, New Jersey, Pennsylvania, North Carolina, Georgia and Florida. Modera may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. SEC registration does not imply any level of skill or training. For information pertaining to our registration status, fees and services, please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov) to obtain a copy of our disclosure statement set forth in Form ADV Part 2A. Please read the disclosure statement carefully before you invest or send money.
For additional information about Modera, including its registration status, fees and services and/or a copy of our Form ADV Disclosure Brochure, please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). A full description of the firm’s business operations and service offerings is contained in our Disclosure Brochure which appears as Part 2A of Form ADV. Please read the Disclosure Brochure carefully before you invest or send money.
This article is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. The case study represented here is hypothetical in nature and is used for illustrative purposes only. It should not be construed as a testimonial. Each client’s situation and circumstances are different, and the foregoing should not be relied upon as legal or financial advice for one’s individual circumstances. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accounting-related matters, we recommend you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements and opinions expressed in this article are subject to change without notice based on changes in the law and other conditions.