The Verus Team

Are You a Fiduciary?

Written by: Derek Majkowski. Any opinions are those of Derek Majkowski and not necessarily those of RJFS or Raymond James.

That was a recent question asked of me by a longtime client.  I couldn’t help but smirk a little after reading the question - which was sent via email.  The smirk was not because I was being asked the question, it is a viable and reasonable question.  The grin was because the term “Fiduciary” is being discussed and debated quite a bit these days, and were it not for the very public discussion on the topic, I’m not sure anyone would even know to ask if someone was a fiduciary or not. 

In addition, I do not think many really understand what a fiduciary even is, or does.  Again, this is not a criticism of the question.  That comment highlights how this now public topic entices a lot of opposing forces to opine and provide multiple perspectives and interpretations on what a fiduciary is or should be.  As such there is even more confusion and complexity created when it comes to what the term means, and how it should be understood by someone seeking financial advice or assistance. 

The other reality adding to the confusion around the role and definition of a fiduciary is that the answer to the simple question – Are you a Fiduciary? – Really depends on who you ask and what the financial professional is being tasked to do on someone’s behalf.  This in-turn does not make answering the question very simple.

Allow me to explain.  As an initial Stockbroker, now a Registered Investment Adviser Representative, and CERTIFIED FINANCIAL PLANNER™ professional (CFP®), I hold several securities and insurance licenses, certificates and registrations.  As such, I am held to multiple standards across several different governing bodies depending on the services I preform on the behalf of clients.

Sit back – this is the really riveting part.

In each of the above, I am either held to make suitable recommendations on investments (like a stockbroker), and I am accountable to the supervision and enforcement of the independent regulatory body FINRA.  I am also a Registered Investment Advisor Representative which is overseen by the SEC which adopts a transparency and disclosure approach to a fiduciary duty, but only to investment advice and management.  As a CFP® professional, I am held to a fiduciary standard of care when I engage in financial planning activities, and I am beholden to the CFP Board’s Standards of Professional Conduct.

Add to these different registrations and governing bodies, the impending Department of Labor (DOL) Fiduciary Rule (expected to go into effect at some point in some fashion), requires all advisors and firms to act as a Fiduciary for retirement accounts and retirement investors, but not non-retirement accounts and investors. 

Are we having fun yet? 

Here’s the point.  Depending on what I do for a particular client, say financial planning or offering investment advice and management, I may be held to a fiduciary standard.  Whenever the DOL Fiduciary Rule goes into effect, I will be held to that standard on retirement accounts, but not non-retirement accounts (huh?).  But, if I am simply taking an order to purchase a security or insurance product, or facilitating a transaction on a client’s behalf, I am not held to a fiduciary standard, but I need to make sure the product is understood and suitable based on someone’s risk tolerance and financial situation.

That’s clear and simple - right?

Bottom line is that the objective and goal with being a fiduciary, or simply an upstanding professional that offers financial and investment advice, is to act in the best interest of clients, provide full disclosure and transparency, educate, and inform if there are any conflicts of interest. 

In short, to be an honest and good person and do the best you can on behalf of your client, whom you come to know and understand in a comprehensive capacity, while delivering service in a fair, transparent, and reasonable way.

All of the governing bodies are well intended on creating awareness and an environment that informs and protects investors.  That all makes a ton of sense, and should be welcomed by anyone who values the profession of helping individuals and institutions with their respective finances. 

The integrity and professionalism of the financial industry, and the business of providing financial advice and assistance is extremely important.  The credibility of the industry has certainly been challenged over the years by some less than upstanding characters and corporate practices.  Heck, we are still seeing some questionable practices, and it seems impossible to rid the industry, or any industry for that matter, of dubious participants.

So yes, it is essential to take steps to address those topics and protect unassuming and innocent investors or consumers.  I am a huge advocate for pulling back the curtain on the industry, and helping clients navigate their financial objectives and goals within a highly regulated, and often times, confusing investment landscape.

And that’s the point…

The overall financial services industry and the relationship between client and financial professional has changed and evolved significantly over the years.  So too has the complexity of products, services, laws, and enforcement tactics.  Part of the confusion is being facilitated by those same entities that are out there trying to protect, inform, and educate investors and consumers. 

As it stands currently, an investor or consumer of investment products has several government (both Federal and State), non-government, and independent industry groups all creating, promoting and advocating rules and standards for the way financial professionals deliver their services and interact with clients.  While all well intended, each of these groups have a slightly different focus or interpretation of what that means and entails.  It also takes time deciphering and understanding those differences and nuances, and that could draw attention away from more important or personal priorities.

At the end of the day, this is primarily a business that involves individuals and planning for very specific goals and objectives.  Any constructive and productive relationship starts and ends with trust, honesty, open communication, and mutual respect.  Regardless of how a regulatory body or advocacy group looks to define or frame a standard, term, or rule, the best financial professionals use those core principles as the foundation by which they engage and deliver services to their valued clients – “Fiduciary”, or not…