Why is a “Fiduciary” important?

Is being a Fiduciary really that important?

In the strictest sense of the word, Fiduciary standard means putting anothers’ interest ahead of your own.  In terms of investing, it means an advisor is required to put their clients’ interests ahead of their own.  Not even with their own, but actually above their own needs.  This is a higher bar than advisors who are not Fiduciaries have to meet.

Most advisors must to adhere to a much lower “suitability standard”.  While that may sound like reasonable protection for clients, we think clients should demand more.  As an example, let’s assume there are 10,000 possible investments from which an advisor could choose.  The advisor with a suitability standard might eliminate 4,000 of those investments as not being suitable for a particular client.  That would leave 6,000 investments with various costs and features that they could recommend for their client.  The advisor with the fiduciary responsibility would have to further whittle those 6,000 investment options to just those that are the best for the client.  Since most investments products are created to first meet the needs of the firm selling them, that list of 6,000 might be reduced to 500 that are actually better for the client.  The advisor who is a fiduciary would choose only amoung this must smaller list of options, thereby increasing the probability of success for the client.

In addition to being a fiduciary by the structure of our Fee-Only Registered Investment Advisory firm, we have also signed the Fiduciary Oath developed by the Committee for a Fiduciary Standard.  This organization is promoting the expansion of this high standard to any firm that holds themselves out as a professional providing financial and investment planning as distinct from firms merely providing brokerage services.  And, we commit, in writing, to a Fiduciary Oath for all our clients.

A great man and great investor, Warren Buffett once said, “What you need to help you is someone who is smart, motivated and ethical.  And, ethics is the most important.  Because, let’s face it, if they are not ethical, you want them to be dumb and lazy.”  By committing to act in a fiduciary capacity, an advisor is holding themselves to the highest ethical standards in the industry.