Should an investment advisor put his or her interests ahead of the clients? Most people would agree the answer is no. Yet, the recent turmoil in the financial world has made this more difficult as the lights have shone on those who have misbehaved significantly, particularly in the US. A coalition of financial planning organizations in the United States has recommend the establishment of a Fiduciary Standard for financial advisors coupled with more regulatory oversight by the Securities and Exchange Commission (SEC), which regulates transactions by all Securities exchanges, securities brokers and dealers, investment advisors and mutual funds. Some here in Canada might question, however, whether the quickest path to required change is more regulation.
Down south, the Financial Planning Coalition, which includes the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors, issued a news release on March 29, which called on government to act on recommendations to establish such a fiduciary standard and to fund investor protection activities. These measures are necessary to restore faith in the financial markets, says the coalition, in response to surveys by the Consumer Federation of America and other groups that found 97% of investors agreed that a financial professional should put the investor’s interest ahead of their own.
The Committee for the Fiduciary Standard, formed in 2009 and based in Virginia, is comprised of finance industry professionals who believe that five universal principles should be followed by all those who provide investment or financial advice. The group has offered Five Core Fiduciary Principles:
- Put the client's best interests first
- Act with prudence; that is, with the skill, care, diligence and good judgment of a professional
- Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts
- Avoid conflicts of interest
Fully disclose and fairly manage, in the client's favor, any unavoidable conflict.
What should be done in Canada? We have been proactive at the Knowledge Bureau, building a framework for a high standard in continuing education is the key to consistently high standards of fiduciary duty. In our view, this begins with the establishment of a strategy and a process for the consistent delivery of principle-based decision-making. It requires both deep knowledge on a multi-faceted menu of expertise—tax, retirement, investment and estate planning, for example—and then a strategic plan that maps the right investment product decisions with client needs for accountable results over time. The convergence of varying market cycles with client life events makes this very difficult. But that’s exactly why it is so important to establish a way to take the onus off the individuals and put it on the strategic process that will carry advisors and their clients through a lifetime of variables in the markets.
Here in Canada, the Knowledge Bureau, a national post-secondary institution focused on excellence in financial education for advisors and their clients, has pioneered the inter-advisory discipline of Real Wealth Management™ and the Master Financial Advisor (MFA™) designation as a benchmark for those who specialize in client-centred and tax efficient wealth management. Its mission is to focus on standards-based continuing professional development that avoids random CE hour selection in favor of a defined academic path. The investment of thousands of hours by leaders in the tax financial services into its curriculum has made it vibrant for the times and we are proud of that thought leadership. We have also been proud to assist individual advisors, product manufacturers, dealers and institutions in their quest to serve their clients better, through a high standard for continuing professional development and practice management.
It’s Your Money. Your Life. If you believe there is a better way, sometimes you just have to draw a line in the sand, invest in collaborative thought and build a better castle. Difficult times can produce that opportunity both for advisors and the clients they serve. The trick is to sustain the investment in good times and in bad.