As the fiduciary tide rises, and more and more financial planners choose to be recognized as fiduciaries (either by choice of regulator, or the various fiduciary oaths taken under the CFP certification, NAPFA or FPA membership, etc.), there seems to be an increasing casualness towards what it means to be a fiduciary. The basic refrain seems to be “Sure, I’m a fiduciary, I only do what I think is in my client’s best interests.” But the reality is that being a fiduciary is about more than just doing what you THINK is in the client’s best interests; it’s about having a process to reasonable ensure that what you do actually IS in the client’s best interests!
The inspiration for today’s blog post comes from two guest blog posts earlier this week by financial planner Nathan Gehring, on “The Burden We Bear” as financial planners, and the idea that “First, Do No Harm” should be our credo, supported by a process that would require new strategies and approaches with clients to first be rigorously tested in trial before being applied on “live” clients.
Nathan’s first post, telling his story at the downfallen firm Wealth Management LLC – fiduciaries to the last drop, who allegedly still managed to (unwittingly?) create a financial catastrophe for a number of clients – paints what I think would be a frightening picture to many financial planners: a firm who embraced fiduciary, yet things still went horribly wrong. Which to me, illustrates the fundamental point – it’s not about doing what you THINK is right, it’s about actually doing what IS right. In other words, it’s not just about committing to minimize conflicts of interest, or stating that you will avoid making recommendations that reap more profit to you at the expense of your clients. Good intentions alone are not enough; it’s also about taking the steps to ensure a reasonable expectation that your recommendations actually will lead to the favorable client outcomes that are desired.
This means you have to have a process to know which is which. Don Trone at Strategic Ethos discusses this as well in his work on the Fiduciary Ethos, making the point that it’s not just about what you do, it’s about the decision-making process that you engage in to do it. Nathan illustrates the point in his second blog post, about the concept of having a trial-and-test and peer-review process to recommendations/strategies/approaches before they are implemented with clients.
The basic principle is pretty straightforward. If someone asks you WHY you make the recommendations you do, and your response starts with “I believe…” there is a potential problem. When your response starts with “The research says…” you’re on much better footing. If you can articulate what research you used, how you arrived at the conclusion, and a process that you apply to ensure that occurs with each and every planning recommendation/strategy/approach, you’re moving further down the true fiduciary road.
As Nathan’s post highlights, if all your recommendations are built upon your personal beliefs based on good intentions, it is simply not enough. It appears that the principals at Wealth Management LLC really did believe that their actions were in the best interests of their clients; the results were something different. But if you don’t have a true fiduciary process, you may not be able to distinguish between what you believe and what the reality actually is (or what it might turn out to be at its worst). Nathan’s story makes it clear that sometimes just believing what you’re doing right simply isn’t enough, and the ramifications on a client’s real world can be severe.
So what do you think? When clients ask you how you arrive at your recommendations, does your response start with “I believe…” or is it “The research shows…” Is this an important and meaningful distinction? Is fiduciary more about intentions, outcomes, or process?