Ask the Fool: Fiduciary must act in client's best interests

It's smart to ensure that your adviser is held to the fiduciary standard

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Q: What's a "fiduciary" standard? – A.H., Burley, Idaho

A: A fiduciary standard requires people who might give you financial advice to act in your best interest, recommending or doing whatever will serve you best and avoiding any conflict of interest.

Some advisers (like broker-dealers) may simply abide by a "suitability" standard, recommending or doing whatever is suitable for their clients. What's suitable, though, may not be what's best – and it might earn them a sales commission that a better move for you might not. Indeed, among your options for suitable investments, a nonfiduciary adviser might recommend the least suitable one. (Of course, many nonfiduciary advisers are still ethical and may serve you well.)

Supreme Court Justice Benjamin Cardozo famously referred to the fiduciary standard by noting, "A trustee is held to something stricter than the morals of the marketplace."

When you're looking for financial advice, it's smart to ensure that your adviser is held to the fiduciary standard, looking out for your best interest before his or her own. Registered Investment Advisers (RIAs) and Certified Financial Planners (CFPs) are generally held to the fiduciary standard.


Q: What's an 8-K report? – L.C., Lexington, Ky.

A: Publicly traded companies in the U.S. are required by the Securities and Exchange Commission (SEC) to release financial reports every quarter. If certain notable things happen between those reports that may impact the company's health or performance, then an 8-K, or "current report," must be filed. An 8-K might report a completed merger or acquisition, a bankruptcy filing, a change in top leadership, layoffs, or plant closures, among other things. You can look up SEC filings at

Fool's school

Researching companies: If you're thinking about investing in a company, dig into it: Learn enough to make a confident, informed decision to buy or not to buy. Here are some questions you might ask. (Don't worry about unfamiliar terms – just start learning about investing, and you'll get better over time.)

Is the company in a growing industry? What's its business model – how, exactly, does it make its money? Does it require a lot of money to operate and grow (as in manufacturing) or not so much (as in online marketplaces)?

How has it been performing? Are its revenue, earnings and profit margins growing? How does it compare with competitors? Is it growing its market share?


What sustainable competitive advantages does it have? Examples include a strong brand, valuable patented technology, economies of scale, a big multinational presence and robust employee retention.
Does management impress you by communicating candidly (as in annual letters to shareholders) and executing smart strategies?

What risks does the company face? Many things could go wrong, such as losing a customer that accounts for a big chunk of its business. (Companies' annual 10-K reports typically list a variety of risks.)


Does the company pay a dividend? If so, what does it currently yield, and how much has it been increased over the past few years? (Stocks without dividends can be great investments, but reliable income from a solid dividend payer is appealing, too.)

Does the stock seem overvalued or undervalued? (Ideally, you'd buy shares that are undervalued.) Valuing a company is a subjective endeavor, but undervalued stocks typically have price-to-earnings (P/E) ratios below their own five-year averages and below those of competitors.

Next week we'll offer some resources that can help you research companies of interest. In the meantime, you might learn more in investing books by Joel Greenblatt, Peter Lynch, Philip Fisher, John Bogle and The Motley Fool.

My dumbest investment

15-Year Blues: My dumbest investment move was buying my house with a 15-year mortgage. – A.V., online

The Fool responds: That wasn't necessarily a dumb move – both 15-year and 30-year home loans have their advantages and disadvantages. You didn't explain why you're unhappy with your 15-year mortgage, but it's likely you don't like the higher monthly payments, which can leave you with less money each month for saving, investing or spending on essentials and treats. On the other hand, a shorter-term mortgage will let you pay off your home and build equity much more quickly, while paying a lot less in interest over the life of the loan. (A 15-year loan typically has a lower interest rate, too.)

Meanwhile, 30-year mortgages have lower monthly payments but higher interest rates, and you'll pay a lot more in interest over the life of the loan. A loan can help you qualify to buy a more costly home – but it's generally better to buy a less expensive one so you have wiggle room if you lose a job or suffer some other financial setback.

Also note that it's best to build up your credit score as much as you can before borrowing money, so that you're offered better interest rates. Paying bills on time and paying down debts can help with that.

Foolish Trivia

Name that company: I trace my roots back to 1886, when I was formed in Pennsylvania as a water and gas business. I bought and sold many companies and then went bankrupt in 1913, but reorganized and survived. In 1947, I reportedly had assets of $183 million when an eighth-grade dropout bought me in an auction for $13 million. In 2008, I began trading on the New York Stock Exchange. Today, with a market value recently topping $28 billion, I'm America's biggest and most geographically diverse publicly traded water and wastewater utility company, serving some 15 million people in 46 states. Who am I?


Last week's trivia answer: I trace my roots back to 1932, when McGee Airways and Star Air Service began flying in Anchorage. By the late 1940s, I was one of the world's largest charter operators, having bought some former military aircraft. I delivered food in the Berlin Airlift and transported Yemenite Jews to Israel in 1949. Today, with a market value recently topping $8.5 billion, I'm an international operator; I take more than 44 million customers to more than 115 destinations in four countries annually. I was the first North American airline to sell tickets online. I bought Virgin America in 2016. Who am I? (Answer: Alaska Air Group (parent of Alaska Airlines)

The Motley Fool take

Spinning for dollars: Peloton Interactive (Nasdaq: PTON) enjoyed a huge tailwind from the pandemic in 2020. With gyms closed and social distancing in place, demand for in-home exercise equipment soared. Peloton's combination of hardware and connected exercise services got a huge boost and enjoyed stellar growth, but now investors are focused on figuring out which stocks are likely to thrive in a post-pandemic world.

As gyms start to reopen, the company's offerings could seem less essential. But while the exercise innovator's growth might be uneven in the near term, relaxing social distancing probably won't destroy its long-term opportunities.

Meanwhile, Peloton might have to recall its treadmill due to safety concerns – a move that may push its shares down further.

Peloton's stock price is already factoring in an economic recovery and a possible treadmill recall, recently trading down 41% from its 52-week high. The brand still looks very strong; Peloton is a first mover in the connected exercise equipment space and still has a lot of room for growth.

The stock isn't low-risk by any stretch, but the business is executing at a high level, posting impressive growth and recording strong profit margins. For investors with a buy-and-hold approach, Peloton could be a winner. (The Motley Fool owns shares of and has recommended Peloton Interactive.)

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