The Most Dangerous Investment Term is Fiduciary

Welcome to the 3rd and final post in the Distilled Dollar Investing Crash Course series. Each post builds off the last so be sure to check back on the first post and second post, if you haven’t already. This article is about the most dangerous term in the investment glossary, “Fiduciary,” and I’ll detail a clever loophole you may not have known about.

Why is Fiduciary dangerous? Because common advice in personal finance is do-it-yourself as opposed to paying somebody else to manage your money………..which is great, because if I work to earn the pile of cash, then I’m all on board with preventing people from taking a small % of it each year. The problem occurs when….

When people ask about obtaining a financial advisor, the advice becomes dangerous and borderline crazy.

This article will discuss and elaborate on why the most dangerous investment term is fiduciary.

What does Fiduciary mean?

Fiduciary – adj – means there is a legal obligation to place the client’s needs ahead of the fiduciary’s needs.

In theory, a fiduciary advisor will NOT push a product unless the product is in the best interest for the advisee.

Non-fiduciaries have what’s known as a “good enough,” clause that allows them to provide sometimes the bare-minimum in coverage or advice.

A common example here is a fiduciary may recommend her client to avoid high-cost mutual funds in favor of low-cost index funds. Given similar circumstances, a non-fiduciary, may push for the high-cost mutual funds because she is receiving a higher commission on the sale that is less fortunate for you.

In reality, a fiduciary advisor may be what’s called a “dual agent” — where they are hired to push expensive products while still calling themselves a fiduciary.

So, the next time you’re thinking of hiring an advisor, you know the two questions to ask:

  • Are you a fiduciary?
  • Are you a dual agent?

The money sucker would have stopped after the 1st question, but now we know a follow up is essential to protecting our money.

The Perfect Advisor for You

The Most Dangerous Investment Term is Fiduciary 2

The perfect advisor for you is………you!

Ownership of our money leads to more than just financial benefits. Especially when we have little financially, it makes even less sense to pay someone to manage our little pile of money.

When it comes to money management, we should manage our money, where possible.

This is what we preach on Distilled Dollar because we live it. Everything we have ever done boils down to the fact that money management was done in house.

Even extremely low cost fees of 0.25% from places such as Wealthfront or Betterment will cost $100,000+ over your investing career.

More importantly than losing money, we could lose control by designating another to make decisions on our behalf.

The journey to financial independence involves setbacks, a whole lot of #Adulting conversations, and the opportunity to feel complete freedom. Not just financial freedom where our assets cover our expenses, but overall freedom from relying on others for our investment needs.

Take ownership of your investing life and I trust your benefits will be as great as mine.


P.S. This post is the final chapter of the Investing Crash Course! I trust you saw a sample of the largest benefits I received from investing as I discussed my journey to creating financial freedom in my own life along with the 3 Investing Transformations we all must go through to reach mastery over money.

11 comments… add one
  • Financial Coach Brad Jun 18, 2017, 7:03 am

    I disagree with the title of the post, but do agree with a couple of the points.

    Yes, YOU are always the best manager for your money. That said, study after study shows that the average person handles their money horribly. Even with a pretty strong financial community educating them (like you, and myself). So, if the choice is do a really shoddy job or pay someone else – paying someone is often worth it.

    Fiduciary rules are a good thing. You want your advisor/planner/coach working FOR YOU. Not just for themselves. There is an option called “fee-only” which means the advisor should be a fiduciary and also avoiding the “dual agent’ scenario. Fee-only advisors/planners/coaches only get paid what you pay them – they are not allowed to earn any sales commissions, so that removes that HUGE area for conflict-of-interest when giving financial advice.

    So, my thoughts are: Do it yourself, but if you know you won’t, look for a fiduciary fee-only advisor/planner/coach to help you out with your finances.

    • Distilled Dollar Jun 18, 2017, 10:01 am

      Love the comment and agree, especially on the fee-only piece you mentioned. After rereading your comment, I’m still a bit confused why you disagree with the title?

      My impression is the word CAN be misleading so it is necessary to ask clarifying questions – and ultimately I suggest a DIY mentality. I can see we might disagree on the DIY piece, but that’s for another discussion for another day! 🙂

      • Financial Coach Brad Jun 18, 2017, 1:54 pm

        My concern with the title is how I read it (before reading the post) and how other’s might also. It seems to imply that fiduciary is a bad thing – it’s “dangerous”. Reading the post I see that the intent, I believe, is the problem with assuming that one point and not considering a fuller picture of an advisor’s role/incentives/etc.

        I’m largely also with you on the DIY points – we’ve touched on that before (and I still welcome a guest-post on the topic). My concern with it is that study after study and study shows that most people just don’t do a good job at it. They have the capacity – it isn’t rocket science – but they just don’t. Because of this, I think that many people are better served with a low-cost solution like Betterment or Wealthfront.

        So it’s not necessarily that we disagree so much but that I think I’m a bit more realistic (or pessimistic on people changing :->) based on what happens in the real world.

  • Karl Steiner Jun 18, 2017, 12:51 pm

    I am very much in the DIY camp. While there is a long track record of people mismanaging their own money, I think the goal of many investing blogs, like Distilled Dollar, is to encourage people be better at DIY. I firmly believe we can train our minds, control our bad behaviors, and do a better job of managing our own money than most professionals. In my humble opinion working on controlling your behaviors is actually easier than finding an adviser you can really trust.

    • Distilled Dollar Jun 18, 2017, 1:15 pm

      Well said! Especially your last sentence, “…working on controlling your behaviors is actually easier than finding an adviser you can really trust.” Love that line!

    • Financial Coach Brad Jun 18, 2017, 1:58 pm

      Absolutely! I think DD is doing a great job educating people. Hopefully many of my posts are doing the same. 🙂

      “In my humble opinion working on controlling your behaviors is actually easier than finding an adviser you can really trust.”

      Funny – I’m reading “the 5 mistakes that every investor makes” by Peter Mallouk and just stared the fifth mistake today. It’s “Working With the Wrong Advisor”. It’s awesome to see a professional advisor (CFP) point out that many advisors either stink or have conflicts of interest that cloud their judgement and advice. I love the honesty on this point (so far at least) by Peter.

  • Lance @ My Strategic Dollar Jun 18, 2017, 8:34 pm

    “Fiduciary duty” is a phrase I often hear in HOA board meetings when some board members want to mask a situation and redirect homeowners attention. This makes them think they are doing what’s in the best interest of the complex when they are sometimes doing what’s in the best interest of themselves.

  • Dreamer in Chief Jun 19, 2017, 11:07 am


    I don’t see much information out there on dual agents outside of a real estate context. Can you talk a little more about how one could be a dual agent and still legally claim to be a fiduciary? It certainly seems like that sort of arrangement is exactly what the fiduciary rule is intended to prevent.

    • Distilled Dollar Jun 19, 2017, 12:55 pm

      Hah – looks like this article is working. I say that because as you mentioned, there is basically zero information out there on this topic.

      My chief concern is someone who is unfamiliar with personal finance and then simply being duped because they considered “Fiducairy” to be a catch-all.

      To your final point, it looks like they want to establish the law to make it clear. Last I checked there was some hold ups.

  • Colin @ rebelwithaplan Jun 20, 2017, 6:12 pm

    Wow, thanks for writing this. After being in the personal finance sphere for a while, I thought the term fiduciary was just synonymous with a good, no high-cost advisor. Now I know to ask the additional question!

    In regards to Wealthfront, Betterment, and robo-advisors, I’m still a big advocate for them. Simply put, most people just have no desire to focus on going into their investments, buying, selling, and rebalancing. Obviously, it’s better and cheaper to DIY, but with studies showing how people are better off leaving their investments super passive, I still recommend them to my non-money nerd friends.

  • Keith "Shin" Schindler Sep 7, 2017, 3:59 pm

    I’m all in when it comes to the term Fiduciary. I’ve had to “Financial Advisers” who were sales people. The last one convinced us to invest in a $60,000 a year premium Whole Life policy to “Protect” our mineral income.

    When the mineral income tapered off, we couldn’t afford the monthly payments.

    I wonder how much commission she made on that policy.

    Since then we went with Fisher Investments a “Fee Only” fund manager. Since March of 2013 our portfolio has grown by over $150,000.00. I’m all to happy to pay the fee for them to manage our fund.

    If we don’t make money, Fisher doesn’t make money. I don’t have the knowlege or time to manage our money as they do.

    On the other hand, I know how to change the oil in my vehicles and have the tools to do so, so I still do all my oil changes. Same with home repairs and yard work. Heck, I spend hours on the tractor instead of highering ag help.

    Not to brag, but we have a net worth of $1,000,000.00 plus, so I’ll spend my money where it’s going to make me money and not for convenience.

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