Fiduciary Links: The Conflict Inherent to all Advisory Relationships
Posted by Byron Bowman on August 19, 2013
>>>>A disturbing trend emerging from a number of the advisor surveys out there is the number of advisors who perceive that they have no conflict of interest at all with their clients. In fact, the greatest conflict between a client and an advisor is the inherent conflict found in all advisory relationships: that the advisor receives compensation at all. Every dollar collected by the advisor reduces the client’s return. While this conflict cannot be avoided (short of forcing advisors to become charitable institutions), they can be managed by obtaining informed consent. This article discusses how to provide the necessary information in a way that may strengthen the advisor-client relationship.
Given that most advisors receive fee-based compensation, their duty of care requires that they spend their time in a manner that benefits their clients. That remains true even in those “lazy, hazy, crazy days of summer.”
>>>>Not that it should come as a surprise, but we got a glimpse last week at how the sausage is made when metadata revealed that an FSI-associated lobbyist was the source author of a letter submitted by Democrat members of Congress to the DOL urging them not to go too far when re-proposing a fiduciary rule in the near future.
>>>>Speaking of the risks associated with the modern proliferation of data, the duty of care that a financial advisor assumes isn’t limited to the investment assets of clients, but also includes the “information assets” that clients disclose. As data becomes more available, massive, and volatile, the management of that data becomes a greater responsibility for advisors.
>>>>While some columnists wish for the libertarian solution of little or no regulation, most of us are resigned to the current regulatory regime controlling financial advisors. The question that most of us have is what effect the three new SEC commissioners may have on the issues before the Commission—including the adoption of the fiduciary standard.
Now on to the best links of the week:
News and columns from the leading trade, consumer, and mainstream media:
- Advisors are reluctant to do real succession planning [InvestmentNews]
- Does data management need more oversight? [InvestmentNews]
- Are 401(k) options more confusing than health insurance benefits? [InvestmentNews]
- Address the elephant in the room: discuss your fees with clients, and your value. [InvestmentNews]
- How to fix advisors' regulatory woes. [FinancialPlanning]
- According to a recent Financial Planning survey, advisor confidence falls again. [FinancialPlanning]
From the organizations/associations/government/academia:
- SEC, CFTC, and FINRA issue joint guidance on business continuity and disaster recovery planning [SEC]
- Michael Piwowar sworn in as SEC Commissioner.[SEC]
- A summary and directions to purchase the data management report referenced at the top of this page can be found here. [Aite Group]
From the blogs:
- A legal analysis of whey the Yale 401(k) letters, limits aside, should raise an alarm to plan sponsors. [RIABiz]
- Five reasons why 'summer-is-slow' is no excuse for an advisor to slow down. [RIABiz]
- Trending topics for ERISA plan sponsors. [FiduciaryNews]
Articles your clients are reading (or should be):
- How to tell if you have a lousy 401(k) plan. [US News]
- 10 smart retirement moves to make in your 20s. [US News]
- Three retirement rules to consider breaking. [US News]
- How to pay down debt while saving for retirement. [US News]
Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.
