The Irreverent Economist

On Being a Fiduciary

At long last, the Department of Labor’s Fiduciary Rule will take effect this Friday, June 9th.  The rule requires that investment advisors put their clients’ interests ahead of their own in rendering financial advice.  Per Investopedia, a fiduciary is a person or organization that owes to another the duties of good faith and trust. The highest legal duty of one party to another, being a fiduciary binds a person ethically to act in the other's best interests.  All service professionals should adhere to the fiduciary standard.  After all, ensuring clients are best-served is eminently sensible, right?  And therefore good business?  One might wonder why the government should have to tell investment advisors what ought to be obvious to them.

Sadly, that’s not how it works in the individual investment world.  The brokerage industry makes most of its money selling “products” and generating trading commissions, the results of which may or may not be beneficial to clients.  Brokers are held to a lower ethical standard—the so-called “suitability” standard, whereas registered investment advisors (RIAs) such as KPF Global adhere to the fiduciary standard.  Conflicts of interest are endemic to the commission-based sales model; after all, you wouldn’t expect a Toyota dealer to tell you about all the great features of a Chevrolet!  Given the amount of money at stake, and the deep pockets of its financial industry opponents, the fiduciary rule has been long delayed.  Even now, the ruling is being interpreted very narrowly, as to apply only to clients' 401k plans.

I came from a different world—the institutional investment world—in which all that matters is client results.  We at KPF Global are compensated only by the advisory fees clients our pay to us. We live or die by the quality our advice, applying an institutional investment approach in a more personalized context.  Former colleagues often come to me for guidance on how to make a successful transition from the institutional to the individual investment world.  Here is what I tell them:  “This work is harder, more complex, less remunerative, and less glamorous than what you are accustomed to.  However, it is more challenging intellectually and far more rewarding personally.  You choose.”

For me, the choice was easy.  It is an honor to earn our clients’ trust.  And we are ever grateful to them for having chosen KPF Global to serve their interests in an increasingly complex and challenging world.  We have proudly upheld the fiduciary standard since 2008.

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