Contributed by: Melissa Joy, CFP® , CDFA®
The fiduciary standard may not be a kitchen conversation in your house, but it’s a hot topic in the world of investment and wealth management. The CFP® board defines a fiduciary as, “one who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client.”
The fiduciary standard has always been at the core of The Center’s financial planning services.
All of our partners and many of our team members are CERTIFIED PROFESSIONAL PLANNER™ professionals, and the obligations of a fiduciary is a fundamental component of a CFP professional’s standard of care. This is in contrast to a suitability standard widely adopted in the brokerage industry. Investopedia defines suitability as “a situation that an investment strategy meets the objectives and means of an investor.” Suitability is often seen as being acceptable whereas fiduciary standard is seen as the best interest.
In the last few years, the Department of Labor stepped in forming regulations they deemed would meet a fiduciary standard for retirement accounts. This move was seen as a win by consumer advocates and cumbersome and challenging by many brokerage firms and financial advisors. Although we might have preferred that the standard of care be interpreted differently by regulating bodies, the shift to a fiduciary standard caused a relatively small adjustment to our daily practice.
With a change in presidential administration and political landscape came a change of favor with the fiduciary standard which was to be enforced by the Department of Labor. While laws were drafted and a timeline was laid out to adopt the fiduciary standard, recent messaging indicates that these regulations will not be enforced by the Trump administration’s Department of Labor. In essence, the DOL’s fiduciary mandates appear to be dead on arrival.
Meanwhile, the CFP Board, the governing body for CERTIFIED PROFESSIONAL PLANNER™ professionals, has broadened the scope of their fiduciary duty for advisors. This, in the end, is where the buck stops for The Center. We will work to continue to ensure that our clients are receiving fiduciary advice avoiding conflicts of interest whenever possible as has been the case over the years. When conflicts of interest are inevitable, we disclose them and discuss them with you.
All of this conversation may sound arcane, but it is at the heart of professional standards similar to an attorney duty of confidentiality or the Hippocratic Oath. We expect that regulations of fiduciary standards may resurface either from the Securities Exchange Commission or Department of Labor. In the meantime, we will continue to operate as fiduciaries as we work with clients like you.
Melissa Joy, CFP®, CDFA® is Partner and Director of Investments at Center for Financial Planning, Inc.® In 2013, Melissa was honored by Financial Advisor magazine in the Research All Star List for the third consecutive year. In addition to her contributions to Money Centered blogs, she writes investment updates at The Center and is regularly quoted in national media publications including The Chicago Tribune, Investment News, and Morningstar Advisor.
Financial Advisor magazine's inaugural Research All Star List is based on job function of the person evaluated, fund selections and evaluation process used, study of rejected fund examples, and evaluation of challenges faced in the job and actions taken to overcome those challenges. Evaluations are independently conducted by Financial Advisor Magazine.