Unlocking Real Value Blog

The F Word Rocks

No – it’s not the word you’re thinking. The F word referred to here is Fiduciary. I was just at a conference sponsored by Fi360, an organization which provides fiduciary education and practice management training to the financial services industry (www.fi360.com).

This is a phrase that I heard – it is actually being promoted by The Committee for the Fiduciary Standard. You can gather from it that both organizations support the fiduciary standard for all industry participants (the current debate revolves around the broker/dealer world, where advisors are not held to this standard, and the RIA world where advisors are held to this standard).

Simply put, in the broker/dealer world (e.g., wirehouses), advisors are held to a suitability standard – know your client – is a given recommendation suitable for the client? The standard in the RIA world is higher – these advisors are held to a fiduciary standard – essentially, what would an expert in this area do in this situation?

It is unclear whether regulatory reform will mandate the fiduciary standard for all, but at this point it seems unlikely. Both sides have powerful lobbies and this issue is sure to rage on.

Interestingly, there were many wirehouse advisors at this conference and there are many that are members of Fi360 and have earned their AIF (Accredited Investment Fiduciary) designation. As this debate continues, I still believe that the key for any client is not where their advisor resides (wirehouse v. RIA), but rather what he/she has done to educate him/herself and what they do in their practice to help add value to their clients.

I have said it before and I will say it again – hiring an RIA who is held to the fiduciary standard does not guarantee the client that they will be satisfied any more than hiring a wirehouse advisor will assure dissatisfaction.

Until our regulatory agencies prove better at enforcement, the individual client is best served by doing extensive due diligence on their advisor or on advisor candidates regardless of which standard they are held to.

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