Group aims to influence reform

The Committee for the Fiduciary Standard is an organization that every investor and financial professional should know about.

It was founded about three months ago by a small group of volunteers who saw an opportunity to build public awareness of what it means to be a fiduciary and to promote a grass-roots movement of investors and financial professionals to influence financial regulatory reform to extend fiduciary duties to all who give financial or investment advice.

Amid financial crises and a seemingly endless series of investment scandals, the founding members figure that the importance of fiduciary conduct and accountability has never been more apparent.

The committee isn’t an exclusive organization; it is open to anyone who thinks that financial advice should be held to the fiduciary standard of care. There are no dues or time commitments.

The only required contribution to join the committee is an expression of support for adherence to five fundamental fiduciary principles in all advisory relationships.

Those principles are intended to translate core fiduciary duties established in law into terms that are likely to be recognized by both financial professionals and the public as inherently important in advisory relationships based upon trust. They are intended to inspire readers to ask: Who could possibly oppose such common-sense expectations for people who are relied upon to manage other peoples’ money in a manner consistent with society’s other most influential advisers, such as doctors and attorneys?

As you read the following principles, consider whether you agree that they should be required of professionals who provide, or profess to offer, financial or investment advice.

• Put the client’s best interests first. This principle is based upon the singular duty of loyalty fiduciaries owe to the investors they serve. Arguably, this principle could stand alone as the “golden rule” of fiduciary duty. An assessment of whether a trusted financial adviser has violated the fiduciary duty of loyalty may well boil down to whether the best interests of a client have been compromised by an adviser’s incompetence or negligence, deceit, self-dealing or failure to recognize and resolve a conflict in the client’s favor.

• Act with prudence. In other words, act with the skill, care, diligence and good judgment of a professional. The fiduciary is held to a prudent-expert standard. It goes beyond the suitability requirement to have sufficient knowledge about an investor’s circumstances and the characteristics of various investment choices to make a suitable recommendation. The fiduciary standard recognizes that when an investor seeks advice, the adviser is in a superior position of knowledge and/or authority over the client’s assets; as such, the fiduciary must be both loyal and competent.

• Don’t mislead clients; provide conspicuous, full and fair disclosure of all important facts. This principle applies to both advisory and transactional relationships. However, disclosures required for investment advisers subject to a fiduciary duty are more extensive and are oriented toward factors that may influence a client’s decision to establish a long-term relationship of trust.

• Avoid conflicts of interest. A conflict of interest is a circumstance that makes fulfillment of a fiduciary’s duty of loyalty less reliable. Hence, conflicts by fiduciaries are to be avoided whenever possible.

• Fully disclose and fairly manage, in the client’s favor, unavoidable conflicts. Certain conflicts can’t be avoided, such as when an adviser’s employer provides investment products that may fulfill important unmet investment needs in client accounts. In this example, the fiduciary’s singular duty of loyalty to the client is in conflict with the adviser’s probable desire to help his or her employer’s business results. In such circumstances, the fiduciary should resolve the unavoidable conflict in the client’s interests by removing any impediments to the adviser’s objectivity. Informed consent is an important requirement in the management of unavoidable conflicts because no rational person would consent to a conflict that they knew to be detrimental to their interests.

Since its inception, the Committee for the Fiduciary Standard has successfully raised public awareness of the issue through media coverage and met with policymakers and lawmakers to advocate for its position. There are now about 620 members of the committee, and the more members who join, the louder the voice becomes. To learn more about or join the committee, visit thefiduciarystandard.org.

Blaine F. Aikin is the president and chief executive of Fiduciary360 LP.

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