When you own a small business, you make decisions to protect your company. Throughout the life of your business, you might need to seek advice or help from professionals. In some cases, you might entrust a fiduciary to manage assets or provide business advice.
According to one poll, 27% of people don’t what a fiduciary is, and 20% believe fiduciaries are the same as financial advisers. To keep your business safe, you must understand when to use a fiduciary. But first, what is a fiduciary?
What is a fiduciary?
A fiduciary is a person or business who is responsible for another person or business’s assets. Unlike other financial advisers, fiduciary agents have a legal responsibility to act in the best interests of their clients. Lawyers, accountants, bankers, trustees, and stockbrokers can all be fiduciaries.
Fiduciary examples for small business
Adding the expert and honest voice of a fiduciary can help you make financial decisions for your small business. There are many reasons you might use a fiduciary in your business.
Fiduciaries can fill accounting roles and help you decide where and how to invest your money. Fiduciary asset management creates trusts and puts the fiduciary in charge of managing your business assets.
You might appoint a fiduciary to manage your small business retirement plans or other benefits you offer. For example, if you provide 401(k) plans, a fiduciary could help you to set up an account, enroll interested employees, ensure you follow guidelines, and make payments.
What is fiduciary responsibility?
Fiduciary responsibility is the fiduciary agent’s duty to act legally and ethically while managing their client’s assets.
What does fiduciary responsibility mean for your business? Because fiduciary agents are held to a higher fiduciary standard than general financial advisers, you can feel confident that your business is in good hands. The fiduciary cannot have a conflict of interest when they work for your business. They must advise you to make decisions that benefit your business rather than what benefits them personally.
A financial fiduciary is required to disclose detailed records when they advise you on something. This can help you to see how the decision would benefit your company.
Fiduciaries must update your accounting records by recording gains and losses of business capital. And, the fiduciary needs to provide supporting documents so your accounting records are clear and accurate.
What is a fiduciary account?
If you entrust funds or other assets with a fiduciary agent, they will place that money into a fiduciary account. Fiduciary accounts are bank accounts that are owned by you but managed by your agent.
According to the FDIC, fiduciary accounts are treated as regular accounts you might have as long as they are owned by you, the account records explain that it is a fiduciary account, and both you and your fiduciary are identified.
Some examples of fiduciary accounts include trusts, estate accounts, escrow accounts, and accounts with a power of attorney.
What is fiduciary risk?
Fiduciary risk is the concern that your fiduciary will not act in your best interest. Your fiduciary agent could break their fiduciary obligation by misleading you or even misusing your assets.
To limit fiduciary risk, choose your business fiduciary carefully. And, make sure the adviser is a fiduciary. Eighty percent of advisers label themselves as fiduciaries, even though 37% think the term is meaningless. It’s your responsibility to ensure that the person you entrust as your fiduciary is actually a fiduciary.
The U.S. Department of Labor suggests asking an adviser questions to make sure they are a fiduciary and will act in your best interest. Here are some questions you could ask:
- Do you consider yourself a fiduciary?
- Are you willing to act as a fiduciary with a duty to act solely on my behalf?
- Do you earn money based on the number of products I buy or my investments?
- Are you a licensed or registered investment adviser?
Talk with prospective fiduciaries before making your decision. Understand their responsibilities to you and what they will do for your business.
Make sure you and your fiduciary keep accurate accounting records. Patriot’s online accounting software makes it easy to manage your income and expenses. Try it for free today!
This article is updated from its original publication date of October 22, 2015.This is not intended as legal advice; for more information, please click here.