More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- How to Avoid Sabotaging Your Compliance Exam There is much more to compliance examination survival than knowing all of the rules. It helps to understand why the rules were put in placeand to recognize that examiners are not the enemy.
Fiduciary issues pop up in the oddest places. I was visiting an open house recently where the selling realtors handed me a brochure mandated by the state of New Jersey explaining who realtors represent when a homeowner is buying or selling a house. “We can represent the seller,” the female realtor explained, “or we can represent the buyer.” Either way, she said, the realtor has a fiduciary responsibility. Oh, the realtor can also represent both parties—the buyer and seller—in the transaction. “So how do you juggle being a fiduciary to the seller and the buyer at the same time?” I cheekily asked. The male realtor said something in reply to my question that didn’t make any sense, and I didn’t pursue the topic—after all, I was there to look at a house, not parse the niceties of a fiduciary standard.
Harold Evensky has been an early and fervid proponent of having one fiduciary standard for all advice givers. As part of the Committee for the Fiduciary Standard and the Institute for the Fiduciary Standard, our cover subject this month said he has become “fairly jaundiced about Congress or the regulators doing anything” about imposing one fiduciary standard. One of the problems with the issue, he said, citing his Committee and Institute work and his many visits to lawmakers and regulators, is that “you have to demonstrate that something bad is happening” when an end client is not served under a fiduciary standard. “It’s not a Madoff scam, it’s nickel and diming; we’re not talking about big dollars,” so the regulators and legislators don’t see the significance or the urgency.
However, Evensky says that “clients have to protect themselves,” so that’s why “we’ve come up with the mom and pop fiduciary oath” and are encouraging clients “to get their advisors to sign it.”
What’s that oath? It’s simple:
I believe in placing my clients’ best interests first. Therefore, I am proud to commit to the following five fiduciary principles:
I will always put my clients’ best interests first.
I will act with prudence; that is, with the skill, care, diligence and good judgment of a professional.
I will not mislead clients, and I will provide conspicuous, full and fair disclosure of all important facts.
I will avoid conflicts of interest.
I will fully disclose and fairly manage, in my clients’ favor, any unavoidable conflicts.
If the client’s advisor won’t sign, Evensky argues that “you owe it to yourself to ask why you would trust your financial future to that advisor’s care.”
I wonder, though, about the amount of money that clients are losing and the urgency involved. Another proponent of the fiduciary standard, John Bogle, showed how reducing a mutual fund’s expenses through index investing can have a major impact over time on how much money the end investor will wind up with (see Bob Clark’s column on Bogle on page 45).
After all, you advisors are advising your clients on how to succeed in the long term. Why wouldn’t you put those clients’ interests first? The State of New Jersey mandates it for realtors, but for advisors?