Do You Know the Origins of a Fiduciary?

Do You Know the Origins of a Fiduciary?

In today’s financial services industry the terminology is becoming ever more confusing.

Advisor, Broker, CFA, CFP, AAIM, CIMA, and don’t forget the VHS, BETA and DVD (ha, the last 3 were to see if you were paying attention.)

Now they throw in the word Fiduciary.  I did some research and the word Fiduciary comes from an interesting place…….

Let’s go back in time.  The fiduciary standard has its origins in the Middle Ages.  When a knight would go off to war, he would transfer legal ownership of his property to a trusted friend.  During the knight’s absence, the friend had legal ownership of the property, but beneficial ownership still belonged to the absent knight.  The friend served as a fiduciary and was responsible for protecting the estate and acting in the knight’s best interest, knowing that the legal ownership would revert to the knight upon his return.

Fiduciary: Person given the power to act on behalf of another and put their interests first.

The Investment Advisors Act of 1940 is a law that was enacted in order to regulate advisors who, for compensation, give advice to others as to the value of securities or as to the advisability of investing in, purchasing or selling securities.  The law establishes principles for how advisers should treat their clients, which courts have interpreted to be fiduciary obligations.  The adviser, as a fiduciary, owes the client a duty of loyalty, which means they must act in the best interest of the client.  If a conflict of interest exists, the adviser must make full and fair disclosure of all material facts so the client can make an informed decision whether to proceed with a transaction.  Additionally, the adviser owes the client a duty of care, which means the adviser’s advice, based on a reasonable inquiry of the client’s financial situation, investment experience, and investment objectives, is in the client’s best interest.

In other words, according to the SEC rules and the Investment Adviser’s Act of 1940, the 5 responsibilities of a fiduciary are:

  • Put clients’ interest first.
  • Act with the utmost good faith
  • Provide full and fair disclosure of all material facts
  • Do not mislead clients.
  • Expose all conflicts of interest.

The Department of Labor, not the SEC or FINRA, has broadly redefined financial advice to include investments and insurance recommendations, for compensation, to plans, participants and IRA owners.

Scott Krase
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Scott Krase is the President and Founder of the independent, fee-only wealth management firm CrossPoint Wealth. He utilizes a holistic approach to investment management a ... Click for full bio

Most Read IRIS Articles of the Week: March 19-23

Most Read IRIS Articles of the Week: March 19-23

Here’s a look at the Top 11 Most Viewed Articles of the Week on, March 19-23, 2018

Click the headline to read the full article.  Enjoy!

1. Multi-Factor or Not Multi-Factor? That Is the Question

Let’s pretend you are a US investor that wants to deploy some of your money overseas.  You think international developed market stocks are attractive relative to US stocks, and you also think the US dollar will decline over the period you intend to hold your investment.  — Chris Shuba

2. The Lies Spread by Bankers About Cryptocurrencies

I had a chat with The Financial Times the other day, and provided lots of background as to why I don’t think cryptocurrencies are the choice of criminals. The comment that was reported was the following ... — Chris Skinner

3. Alternative Investments? You May Need New Shock Absorbers!

During the tumultuous red and green gyrations of the capital markets this year have your clients anxiously called to ask: “What’s going on with my portfolio?” What do you do when the usually smooth ride in your luxury automobile becomes as bumpy as Mr. Toad’s Wild Ride in the Happiest Place on Earth? What does the average investor do? — Ted Parker

4. Why Fear of Inflation Is Rattling Investors

Inflation is a bad thing, right? It make things more expensive, right? For those of us of, let’s say, a certain vintage, we recall the runaway inflation of the late 1970’s and early 1980’s. So why does the Federal Reserve – in charge of managing the country’s currency and value thereof – actually try to create inflation? It’s called the inflation targeting and it matters to your money. — Bill Acheson

5. The Best Retirement Investments for a Steady Stream of Income

As you near your 60’s, your prime earning and saving years will transition into a period of time where you get to enjoy the “fruits of your labor,” a.k.a retirement. We call this segueing from accumulation to decumulation, the period when you will be drawing from your accumulated nest egg. Dana Anspach

6. An Emerging Theme In Thematic Investing

Exchange traded funds (ETFs) are popular vehicles for market participants looking to engage in thematic investing. Thematic investing looks to take advantage of future growth trends, including disruptive technologies. Given that forward-looking approach, stock-picking in the thematic universe is equally as hard, if not harder, than in traditional market segments. — Tom Lydon

7. 8 Winning Questions You Should Be Asking Every Prospect

It’s not enough for your salespeople to be product experts, they also need to be capable of having the kind of conversations that position them as business experts and even strategic resources. — Lisa Rose

8. 10 Steps to Successful Strategic Alliances

Business growth doesn’t come from wishful thinking. As you know, it takes a lot of hard work. The growth of your business is not an option – it is a necessity. Coordinating the right mix of strategies to gain market share and improve client acquisition rates is essential to advance your firm in today’s economy. — Michelle Mosher​​​​​​​

9. Keep It Light: Harnessing Humor for Financial Marketing Success

It’s undoubtedly true that investors’ financial security is no laughing matter, and this is reflected in the stolid, dour, reliable imagery and branding that is, by and large, the industry standard. This is hardly surprising—investors need to believe they’re placing their hard-earned money in the hands of experienced, trustworthy professionals. — Alexandra Levis​​​​​​​

10. Do the Economics of a Move to Independence Really Add Up?

The number one question advisors ask when exploring a move to independence is how the economics compare to accepting a recruiting package from a major firm. It’s certainly a valid concern, because while the recruiting deals being offered by the wirehouses are down, it is still very possible for a top advisor to get a really attractive hard-to-pass-up offer. — Mindy Diamond

11. Four Big Reasons Why Short-Term Muni Bonds Should Excite You

Municipal bonds might not be the first thing that comes to mind when you think of a sexy investment. They don’t typically command news headlines like the stock market or bitcoin. — Frank Holmes

Douglas Heikkinen
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IRIS Co-Founder and Producer of Perspective—a personal look at the industry, and notables who share what they’ve learned, regretted, won, lost and what continues ... Click for full bio