Client Beware? Harold Evensky's Definition of Fiduciary

That’s no accident. Since I started covering advisors, Wall Street has spent billions of advertising dollars suggesting, implying, or inferring that what you get from brokers is investment advice. Over those same years, in response to various regulatory initiatives or proposals, the industry has as much as admitted that if they had to fully disclosure the nature of the sales relationship, it would affect sales.

That should be our first clue that something’s amiss. For caveat emptor to work in a consumer securities transaction, the consumer should be made aware that “their” broker neither works for them nor has any duty to act in their best interest. But when brokers, or other “financial advisors,” cross over the sales line into giving advice, that’s when a fiduciary duty should apply to the relationship.

What constitutes advice? Financial planning industry leader Harold Evensky recently defined it the clearest, simplest, most elegant way that I’ve ever heard, using what Harold calls the “you” standard: When a broker or any other kind of “advisor” tells a client “here’s what you should do:” buy a mutual fund, sell a stock, hedge a position, etc., that’s advice. If you simply give them product information, that’s sales.

“But if we do that,” I hear brokers and insurance agents across the country crying, “no one will buy anything.” Maybe that’s our second red flag.