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June 01, 2007 at 04:00 AM
I find the discussions on “fiduciary responsibility” interesting (see “Exemption Vacation,” May 2007 issue). A foundation of just about any profession, be it medicine, finance or other, should be to do what not only is believed to be in the best interest of the client/patient, but for which the provider can provide documentation to support any “prescription” given.
Whether the recommendation to the client is to purchase a mutual fund or portfolio of individual stocks, or a “managed account,” the advisor should have a fiduciary responsibility to the client to not just make a recommendation, but to be able to substantiate why such recommendation is believed to be in the client’s best interests based on the assumptions made and the client’s goals, objective and risk tolerance.
Perhaps what is needed is a rule requiring advisors not to just have documents in their file, but provide the client with copies of the assumptions used in making a recommendation and why the advisor feels it is in the client’s interests. This would give total transparency to the process for advisor, client, and regulators.
Ilene Davis, CFP
Financial Independence Services
Cocoa, Florida
Doing the Fiduciary Wiggle
I just read Bob Clark’s column (IA, May 2007) about the FPA vs. SEC suit and was alarmed to read “…that when the certificant is providing financial planning or material elements of the financial planning process, the duty of care owed to clients is that of a fiduciary…” and then [he] explained the wiggle room created by that. I vehemently objected to the original draft and thought this subsequent one “fixed” the fiduciary issue. I am not sure he is right about the wiggle room. The financial planning process, according to the board, is:
1. Establishing and defining the client-planner relationship; 2. Gathering client data, including goals; 3. Analyzing and evaluating your financial status; 4. Developing and presenting financial planning recommendations and/or alternatives; 5. Implementing the financial planning recommendations; 6. Monitoring the financial planning recommendations.
