What a Fiduciary is Designed to Do and What is in the Client's Best Interest

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Over the last few years, so much has been said about what it means to be a fiduciary, but I think there’s still more to talk about in this new world of digital wealth management. First off, to be a fiduciary is a serious responsibility where immense trust and confidence has been placed to literally be a steward of someone else’s money and assets. You have to put your customers’ best interest before your own – that’s heavy stuff – and it really means something.

There was a major push to create an industry standard set of ideals via legislation and regulatory mandates – the “Fiduciary Rule”, that despite so much effort and discussion just kind of dissipated. It’s unfortunate that the industry’s legacy creates a perceived need to legislate not taking advantage of customers! In addition, when the entire industry gets behind something, I reflexively get suspicious of their true motives - sad to say, but it’s right to be skeptical based on history; the sins of those who came before us.

If you’re an RIA you already have the legal position of fiduciary, but what about when you’re an RIA and a broker/dealer? Where does fiduciary start and where does it stop? One thing I see of concern is how the robo advisors may have under priced their services threatening sustainability, without finding new ways of monetizing their customers – a stomach churning concept right there. Debit cards and interchange fees seems to be the product du jour at the moment, and like they’ve done nearly everything else, it’s now on us too – not very innovative. 

So what’s the right model for the customer that allows us to be fiduciary without having to skim revenue in opaque ways, just to survive? How about charging for planning and advice? Transparently; here’s what you’re paying and here’s what you’re getting; unbiased by products and revenue schemes; no monetizing you of your data; no predetermined out comes; honest planning and advice; or maybe you shouldn’t be investing right now – perhaps you should be paying down expensive debt or building up an emergency fund. If I monetize you via interchange fees on your debit card, am I going to encourage spending over saving and investing?

It’s important stuff but it’s not complicated at all. Being a fiduciary is a simple concept but hard to adhere to within many of the business models being followed today. Separating the planning and advice from the product-solution, changing what the customer pays for and how, is a good place to start. Let’s be in the fiduciary advice business and not merely digitizing product. Let’s charge a fair and transparent fee without conflicts and give our customers what they deserve.

Origin of Fiduciary

1585–95; < Latin fīdūciārius of something held in trust, equivalent to fīdūci(a) trust + -ārius -ary

John R. Crittenden

Director of Strategy and Partnerships, Pefin

Jay Gopalakrishnan