Fiduciary Financial Planning for Employees

Who can you trust when it comes to financial guidance in the workplace? For employers and employees alike, there can be a lot of confusion.

Research found that nearly 50% of Americans incorrectly believe that all financial planners are legally required to act in their best interest. This is a dangerous misconception, as it can lure employees at all levels of financial confidence into getting biased (and often costly) guidance.

When it comes to offering a trusted financial wellbeing program, look for a solution with Certified Financial Planner™️ professionals who are true fiduciaries.

How to Tell if a Financial Planner is a Fiduciary

“Fiduciary” is a fancy word that represents the ethical standard to which a financial planner is held for providing guidance and managing money.

Let's dive into what exactly a fiduciary is and why it matters in supporting employees' holistic financial health.

The official Fiduciary Standard was created in 1940 with the Investment Advisors Act. The Fiduciary Standard states that:

• A financial planner must place his or her interests below that of the client.
• A financial planner is prohibited from buying securities for their account prior to buying them for a client.
• A financial planner must do their best to make sure investment guidance is made using accurate and complete information. The analysis must be as thorough as possible.
• A financial planner must avoid conflicts of interest. As a fiduciary, a planner must disclose any conflicts of interest or potential conflicts of interest.
  

Why Does Fiduciary Responsibility Matter?

Fiduciary responsibility serves as the foundation of trust and accountability for workplace financial wellbeing programs. It matters because it legally obligates financial planners who serve employees to act prudently and in the best interest of employees. Upholding fiduciary standards not only safeguards employees' financial interests, but also fosters transparency, ethical conduct, and long-term financial stability within organizations.

1. Legal Obligation to Employees
2. Fiduciaries are bound by law to act prudently and in the best interests of plan participants. This legal obligation helps safeguard employees' financial interests and ensures transparency and accountability in managing workplace benefit programs.
3. Ethical Standards for Financial Planning
4. Beyond legal requirements, fiduciaries uphold ethical standards that promote employee trust and confidence. By prioritizing the wellbeing of participants, fiduciaries demonstrate integrity and commitment to fostering a positive work environment.
5. Financial Protection for the Workforce
6. Employees rely on fiduciaries to make sound decisions regarding their financial health. Failing to fulfill fiduciary duties can have serious financial consequences for both employees and employers, including potential lawsuits and regulatory penalties.

For more information on fiduciary responsibility, explore the Financial Wellbeing Buyers' Guide.

Fiduciary vs Suitability Standard: What’s the difference?

You might hear financial planners say they act in employees best interest but they aren’t true fiduciaries. That’s where the Suitability Standard comes in.

There’s a lot to unpack here, but the main difference you’ll come across is how they guide their client’s decision making. A fiduciary financial planner will go through an in-depth process to determine the employee's true best interest before giving guidance. After the recommendation is given, there will be additional discussion to make sure there’s no misunderstanding on the guidance and reason behind it.

On the flip side, a planner who is following the suitability standard is not required to have the same level of discussion. Once guidance is given to (the best of the planners knowledge of what’s correct), the conversation can end. The suitability standard only calls for “fair dealing and best execution” which means the planner is required to:

• Execute guidance promptly and at the most favorable terms available, determined through "reasonable diligence"
• Disclose material information
• Charge prices reasonably related to the prevailing market

In addition, the need to disclose potential conflicts of interest is not as strict a requirement as it is with a fiduciary.

It's recommended for employers offering financial planning as a benefit to prioritize fiduciary guidance over planning that only adheres to suitability standards.

How HR and Benefits Teams Can Navigate Fiduciary Responsibilities in Financial Wellbeing Programs

As stewards of employee wellbeing, confidently navigating fiduciary responsibilities is paramount for HR and benefits professionals. There are three key principles that stand out as pillars for success:

1. Conduct Due Diligence
2. HR and benefits professionals should conduct thorough due diligence when selecting a holistic financial wellbeing program that offers digital tools and 1:1 guidance from financial planners. Assessing the fiduciary status of service providers and ensuring they adhere to fiduciary standards is essential.
3. Communicate with Transparent and Clear Messaging
4. Communicate openly with employees about the fiduciary responsibility governing workplace financial programs. Providing clear information about how the program's financial planners will act in their best interest can foster trust and empower employees to make informed decisions about their financial futures.
5. Continuously Monitor the Program
6. Fiduciary responsibility is an ongoing commitment. HR and benefits professionals should regularly monitor the performance of financial wellbeing programs and ensure fiduciaries continue to act in the best interest of employees.

In the realm of workplace financial wellbeing, understanding fiduciary responsibility is essential for HR and benefits professionals. By prioritizing the interests of employees and upholding fiduciary standards, organizations can cultivate a culture of trust, transparency, and financial empowerment. Partner with an unbiased financial wellbeing program that employs Certified Financial Planners™️ who are true fiduciaries. By doing so, you'll both empower employees as they build confidence around their money, in addition to providing yourself (as their employer) some peace of mind.