Why You Should Care About Fiduciary DutySubmitted by HearthStone | Private Wealth Management on January 26th, 2017
Why You Should Care About Fiduciary Duty
The film “Patriots Day” recalls the 2013 Boston Marathon bombing. This unthinkable attack shattered lives and tested the fabric of a city and country. The movie depicts first responders running toward—not away from—the explosions and carnage. It demonstrates another example of extraordinary individuals placing the safety and interests of others before their own.
In many walks of life there are examples of people placing the interests of others above their own. The field of financial advice has a name for such a duty. It’s called “fiduciary duty.” “Fiduciary” and “fiduciary duty” are terms you will be hearing more often. Therefore, we’ll delve into what it is, why it’s entering into mainstream conversation, and what it means to you.
According to Merriam-Webster, “a fiduciary duty is a duty obligating a fiduciary (as an agent or trustee) to act with loyalty and honesty and in a manner consistent with the best interests of the beneficiary of the fiduciary relationship (as a principal or trust beneficiary).”1 In simple terms, it’s the duty to place the interests of others first, and above your own.
For a stark example of what can happen when advisers lack a fiduciary duty, look no further than the recent news coming out of Wells Fargo Bank. Employees were apparently pressured to place the interests of the bank above those of the bank’s clients.
It’s taken years, but finally, an agency of the U.S. Government, the Department of Labor (DOL), has issued a ruling called the “Fiduciary Rule.” It is scheduled to become law in April 2017. Why has the term “fiduciary” become all the rage? And, why did a government agency have to issue a ruling about it?
When it comes to the delivery of financial advice, some financial advisers have a fiduciary duty, and others do not. In short, not all financial advisers have a fiduciary duty to their clients. The ones who don't have a fiduciary duty have less of a duty—a duty to provide advice that is suitable. They may have interests that are in conflict with those of the person to whom the advice is given.
How unfortunate that this momentous fact is lost on many of us. According to a study by Financial Engines, nearly half of Americans mistakenly believe that all financial advisers are required to put their clients’ interests first when it comes to advice.2
Registered Investment Advisors (RIAs) like HearthStone are already required to exercise a fiduciary or “best interest'' duty. We can’t imagine any other way of serving clients. That’s one of many reasons we proudly embrace our commitment to being “all fiduciary, all the time.”
Plus, we’re pleased that the fiduciary concept is going mainstream. Even celebrities like self-help guru Tony Robbins and comedian John Oliver have been talking about fiduciary duty as it applies to financial advice. They seek to educate consumers about the stark contrast in standards of care.
Our daughter, Lauren, was attending Boston University at the time of the Boston Marathon bombing. She was less than a mile from the finish line where the explosions occurred. It was pure luck that she wasn’t within the bombs’ deadly range. The movie reminded us of how fortunate our family was that day. And, we will always be grateful for the first responders who bravely rushed in to attend to those who weren’t so lucky.
Giving and receiving financial advice is rarely a life or death situation. Nevertheless, all Americans can opt to work with financial advisors who follow the “service above self” model of the first responders and place their clients’ interests above their own. When it comes to your financial matters, the choice seems clear.
2”Figuring Out Fiduciary – Now Comes the Hard Part”, by Liz Skinner, InvestmentNews online, May 9, 2016