Understanding Our Fiduciary Standard

Video Transcript

Fiduciary. It’s not a word that rolls off your tongue very easily, is it? And to be quite truthful with you, most consumers don’t quite understand what it means. But it simply means that you can fully trust the person you’re talking to. If they meet the fiduciary standard, they’re working in your best interests and not putting their interests first.

It just sounds logical. That’s the way business should be. But not everybody plays under the same rules. As registered investment advisors, we work under the Securities and Exchange Commission, so we have to follow a fiduciary standard.

Here’s an example I think meets the fiduciary standard: Many of you know from the book I wrote that I tell people that they should pay off their house, at least by the time they retire. If you follow that advice, you put your money into your house mortgage; thus you don’t have as much to invest with me. So, I make less money. It hurts my business to tell you to do that.

But we feel it’s the right thing to do. In fact, it’s something I’ve done. So I made a promise to myself to always tell clients to do what I would do if I was in their shoes. That’s meeting the fiduciary standard.

If I had two products to sell to you, I should make the same no matter which one I went with. So, we charge a management fee, and it doesn’t matter which course of action you take. We make the same. Thus, our advice is objective.

But there’s another standard out there that’s called a “suitability standard.” The brokers who work under the National Association of Securities Dealers have to meet these suitability standards. Now brokers aren’t bad people. They just have a lesser standard to follow, which gives them leeway to maybe not always do the right thing.

They have to find something that’s appropriate for you. So if they have two mutual funds that both would fit your risk tolerance, and they both would fit into the concert of the other holdings in your portfolio, they have the right to choose the one that pays the higher commission to them. They still meet the suitability standard – but they wouldn’t meet the fiduciary standard.

I actually had a client approached by an annuity salesman a while back. The annuity salesman told him that he had to hurry to follow under the grandfather rules because in a few months, it would be hard to sell this annuity under the new rules.

Now I know that’s code speak to say that this annuity meets the suitability standard but it’s not going to meet the fiduciary standard if I have to follow those. That’s not something I think I’m interested in buying. Do you?

So the fiduciary rule is something that has been proposed as law. It was supposed to take effect here in April but then it got delayed a few months. President Trump said they wanted more study done to make sure it’s appropriate because a lot of people in the industry are pushing back and they don’t want to follow this higher standard. We think it’s the right way to do business. We build our business around that way. So, Dickinson Investment Advisors will always do what’s best for the client. That’s just good business – and in the long run, that’s good for us as well.

So the fiduciary standard is something we support. As you hear about it, now you will know more about it. Thank you.

Ron Dickinson

 

[Financial Planning and Investment Management Services offered through Dickinson Investment Advisors, Registered Investment Advisor.  Statistics and market information provided by Litman Gregory Advisor Intelligence.]

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