What exactly is a 'fiduciary' advisor?

Jose Luis Pelaez Inc | Getty Images In today's financial services industry, the terminology is becoming ever more confusing: advisor, broker, chartered financial analyst, certified

financial planner, certified investment management analyst and, more recently, fiduciary. Understanding this last term can make a huge difference in how you choose what kind of advisor you

have and how they manage your money. WHAT IS A FIDUCIARY? A fiduciary is a person given the power to act on behalf of another and put their interests first. The Investment Advisors Act of

1940 is a law that was enacted in order to regulate advisors who, for compensation, give advice to others as to the value of securities or as to the advisability of investing in, purchasing

or selling securities. The law establishes principles for how advisors should treat their clients, which courts have interpreted to be fiduciary obligations. The advisor, as a fiduciary,

owes the client a duty of loyalty, which means they must act in the best interest of the client. If a conflict of interest exists, the advisor must make full and fair disclosure of all

material facts so the client can make an informed decision whether to proceed with a transaction. More from Straight Talk: HERE ARE THE TOP FEMALE PORTFOLIO MANAGERS IN THE US WHY

UNDERSTANDING ASSET ALLOCATION IS KEY NEARLY EVERY FINANCIAL PLAN WRITTEN HAS BEEN WRONG: ADVISOR Additionally, the advisor owes the client a duty of care, which means the advisor's

advice, based on a reasonable inquiry of the client's financial situation, investment experience and investment objectives, is in the client's best interest. In other words,

according to the Securities and Exchange Commission rules and the Investment Advisors Act of 1940, the five responsibilities of a fiduciary are: * Put client's interests first. * Act

with the utmost good faith. * Provide full and fair disclosure of all material facts. * Do not mislead clients. * Expose all conflicts of interest. The Department of Labor, not the SEC or

Financial Industry Regulatory Authority, has broadly redefined financial advice to include investments and insurance recommendations, for compensation, to plans, participants and IRA owners.

Currently, only independent registered investment advisors are required to act in a fiduciary capacity. Brokers or financial advisors working for a broker-dealer firm or an insurance

company are held only to a suitability standard (not a fiduciary standard). FIDUCIARY VS. SUITABILITY To better understand the difference between a fiduciary standard and a suitability

standard, let's try an everyday example: buying a car. Assume you are looking for a car that costs less than $25,000 and gets more than 25 miles per gallon. Those two requirements alone

would leave you with a rather long list of cars that would be suitable to you. However, most of us would do further investigation and consider additional criteria. For example, which models

have the best safety record? Which ones have the best maintenance/repair history? Which ones have the best resell value? You work to find a car that does not just meet your basic needs or

is suitable, but one that is best for you. Would you feel comfortable making your car-buying decision simply by relying on the salesperson representing the car manufacturer? Or would you

feel more comfortable using an independent research organization such as Consumer Reports to help find the best car for you? Apply this idea to your money and the type of advisor you'd

want to manage it and give you advice on investments. Demand an independent, fiduciary level of care for something as important as your financial future. _(Editor's Note: This column

originally appeared at __Investopedia.com__.)_ _— By Scott Krase, founder and president of CrossPoint Wealth_