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August 27, 2014 at 09:48 AM
There have been more insightful comments on the ‘Fiduciary-Only’ issue, this time to my August 20th blog, Fiduciary-Only Advisors: Of Attorneys, ‘Agents’ and Schmucks. The first came from David Sterling, who also gets bonus points for attaching a creative headline of his own: “High Horse or Horse of a Different Color?” to his discussion of the breadth of a “financial planning” fiduciary duty.
“The scope of the fiduciary duty applied to CFPs defies imagination and, if not that, practical reality,” Mr. Sterling wrote. “Consider the practice management implications of being held to a level of competency and accountability for allegedly possessing the expertise and technical skills to serve the ‘best interests’ of the client on ‘all’ matters financial described by the author. [Insurance, investments, estate planning, retirement planning and college planning and investment advice.]… A properly drawn engagement letter could fill volumes with the listing of exclusions required to effectively inform the client of advisory limitations to serve his or her ‘best interests.’It is why I believe care needs to be exercised to distinguish ‘investment advice’ from ‘financial advice.’ It is also why I believe financial advisors and industry gurus need to more effectively articulate their intentions when subscribing to a ‘fiduciary standard.’ It has been my experience that those who are quick to saddle up on a ‘high horse’ are often compelled to seek a ‘horse’ of a different color when called to task.”
Mr. Sterling’s comments remind me of a financial planner back in the mid-1980s. This prominent CFP had written some popular books on financial planning and was regarded by the media and the financial planning community as one of the leading planners in the country. But she had recommended some limited partnership investments (popular financial planning tools at the time) to many of her clients, and some of them went south.
Some of the clients she’d put into those partnerships sued her, claiming she’d neglected to disclose that she’d had a financial interest in those partnerships. Her defense was that she’d been a broker, rather than a financial planner, to all but about a dozen of her clients (who were not in the partnerships in question), and therefore owed the partnership investors no duty to disclose her conflicts.
And she won.
I imagine this is exactly the kind of situation envisioned by Mr. Sterling. And I have no reason to doubt the difficulties that he envisions for CFPs trying to live up to a fiduciary standard for their clients.
