The Fiduciary Rule is coming back to the US, and to be clear, we're happy about it. Working toward a fiduciary standard means working in the best interests of your clients.
But can an adviser who earns a living by receiving product "kickbacks" ever truly work to their clients' benefits? Possibly, if their work still fits a fiduciary standard. You can sell a shopper the most expensive suit in the store, presuming it's the right suit for the customer and you haven't hoodwinked them with the price tag.
Fulfilling a fiduciary standard all depends on what it really means to put your clients first.
You might think, "Easy, if my clients are happy, I'm working in their best interests."
But as is the case with personal relationships, when it comes to clients, happiness is fickle. So, let's rethink what it means to work for the client.
Practically speaking, working in the clients’ best interests means that down the line they don’t sue you. To make this happen, you do need your clients to be satisfied but you also need something more concrete than that. You must show every fee you're charging and how you are counterbalancing it with appropriate value. Moreover, after transparency you need to deliver specificity.
If you're an adviser who charges via product sales, here are the two main variables you need to consider.
The first step in assessing your preparedness of this matter is knowing whether your relationship with your clients would survive complete charge transparency. Before you assume the answer is yes, read on.
Do you send your clients a list of each and every fee associated with your guardianship of their money? Even the fees you're not personally charging, like the fund fees in their portfolios?
The bulk of our customers (wealth and asset managers, RIAs, and so on) operate in highly regulated financial services markets like the UK. They are likely implementing much stricter standards than a would-be US-based fiduciary rule. They are legally required to disclose a lot of charges.
If your clients were to receive such a list - remember, including fund fees - how would they react?
If they would see the fees and nod their heads, then you're off to a good start. However, is your reasoning something along the lines of, "They won't mind the fees because I'm making them more money than they are putting in?"
If so, you need to take a serious step back.
Returns won't always be aplenty. You have to offer something more substantive than "profit" when the markets begin to topple, and even when they're holding steady. Which brings us to our second variable…
Let's say you're making money for your clients and you're revealing the full gamut of your fees. You must be filling your fiduciary duty, right?
Perhaps not. Helping clients win at their goals means not only earning them money but making sure that their money is properly allocated toward the correct goals and wrapped in the appropriate tax treatments. To truly be able to do this, you need to know your clients on a deep level.
Make sure that right off the bat, you know your clients' goals, when, and how badly they want to achieve them.
At the end of the day, it's nice to tell your clients you've helped them earn millions. But you've only truly fulfilled your fiduciary duty when their specific wants and needs have been met.
You don't want your clients to turn around and say, "So you saved me a million for retirement, but that matters less to me than my children's education."
What if you've helped them achieve the right goals, but not in the right frame?
There are so many "satisfaction" factors to consider that go beyond mere cash earning.
How can you meet your clients' wishes when you've assumed - not investigated - what they are?
While a fiduciary standard undeniably has a connection to fee structure, fee transparency and personalization are also large parts of the equation. If an adviser earns through commission, a fiduciary standard is still possible as long as they've been sufficiently personal with their clients and forthcoming with their fees.
The expensive products therefore must be a byproduct of the job, not the intention. If that doesn't sound right, you'll need to rethink how you earn.
