The Fiduciary Duty – Why is it so difficult?
The world of financial services, more specifically financial advice, is full of different kinds of people and organizations that can be hired to assist you, but not all of them carry a commitment do doing it in a way that is in YOUR best interest. But why is that? Why is committing to the fiduciary standard, the standard that requires them to always act in your best interest, such a problem for them?
The simple answer? Because they’re afraid they won’t be able make so much money off of you, selling you products and making investments that put money in their own pockets instead of yours.
Why do I believe this? Two things feed my answer: a) I have some industry knowledge about what products and services are sold and how much is charged by various players, and b) the Law of Simplicity, which states that, all things being equal, the simplest explanation tends to be the correct one. In other words, follow the money.
Recently the CFP Board, which controls the Certified Financial Planner (CFP®) marks, made changes to its Code of Ethics policies, which governs how a CFP® services their clients. These changes will make it such that anyone who holds the CFP® mark must, independent of their employer or any other body, always act in a fiduciary capacity with their clients when providing services and/or advice on any topic, assuming they still want to present themselves as a CFP®. The upshot of this is that if you’re going to hold yourself out to the public as a CFP®, you MUST act as a fiduciary or the CFP Board can strip you of your certification.
Now for someone like myself who put in a LOT of time and effort to become a CFP®, the idea of having to give that up because I or my company isn’t willing to commit to acting in the clients’ best interest is less than appealing. I’m not personally concerned since I and my company already commit to a fiduciary standard and always have, but others are fighting it.
In a Feb. 2 comment letter, Ameriprise Financial Services Inc., Morgan Stanley Wealth Management, LPL Financial, RBC Wealth Management US, Wells Fargo Advisors, Edward Jones, UBS Financial Services Inc. and AXA Advisors, said the CFP Board proposed changes would impact their business model and they shouldn’t do that.
Really? Why? What is it about their business model that would keep them from behaving in a fiduciary capacity toward their clients? It’s because their business model is constructed in such a way that they CANNOT BE a fiduciary and continue to make the profit they have in the past. Retail broker Edward Jones has been in the news more recently on this topic and the reaction is the same: they could take a profit hit and they don’t want that.
So, what’s my point in all this? Well, to be honest, the idea that someone giving financial advice that would be detrimental to the client while enriching themselves *really* gives me diaper rash. It is absolutely possible to make a solid living providing financial services to clients AND do it in a fiduciary capacity. Providing financial advice that is, to the best of your knowledge, ability, and intent, in the best interest of the client really isn’t that difficult and is, in my opinion, the only morally acceptable way to do it. How does an advisor sleep at night when they know they could have met the clients need for service and/or product at a lower price point or better outcomes (or both) and NOT do it for reasons of personal gain?
So, to anyone reading this that might be considering engaging a financial advisor, I say this: Ask specifically how the advisor will be compensated and ask whether or not they will be acting in a fiduciary capacity for ALL advice and recommendations they give. If the answer to the fiduciary question is anything other than “yes, absolutely”, get up, politely excuse yourself, and leave as quickly as possible to find a different advisor; one that will commit to that fiduciary level of service.