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Does your Fiduciary display competence AND disclose conflicts of interest? Both are required!

| August 15, 2017

Financial Folks and entities unwilling or unable to practice the Duty of Care might face legal jeopardy -- even if unintentional

Michael Kitces, writing in his Blog called "Nerd's Eye View,"  pointed out

“What the duty of care essentially requires is that fiduciaries only give advice after conducting the appropriate due diligence, that they make sure they have a process to make decisions in a prudent manner,” Kitces said in a video played at the Retirement Income Industry Association conference at Salem State University. “This means you really have to have a clear process for conducting that due diligence and making the decisions — and, more important, that the advisers have the expertise to be able to arrive at a prudent decision after going through that process."

FYI here's a link to a post of my own about a Fiduciary financial planning process:

And as the Financial Times pointed out:

“Advisers can be negligent without realising they did anything wrong. When charging an adviser for negligence, the SEC does not need to prove they had any bad intention towards their client. Negligence simply compares the adviser’s actions to the standard of care they owe their clients.”


Even though the issue of legal jeopardy is concerning, let's also think about the Big Picture.  A lot has been written about the DOL and its actions regarding the potential expansion of the Fiduciary Standard to retirement investments - e.g. IRAs et. al.  A very large amount of what has been written focused on the money issue as it relates to Financial Folks' compensation, expenses, fees -- that sort of thing.

But s Michael continued:

“Don’t be afraid to call for reinforcements,” he said. “Part of meeting the duty of care is making sure you are only advising on matters to which you can provide competent advice. If you’re not big into taxes, reach out to the client’s tax preparer to make sure your proposed move doesn’t trigger any unforeseen consequences.”

The same goes for other areas, such as estate planning and asset protection. “There’s nothing wrong with a team approach,” he said. “It doesn’t lower the adviser’s credibility…If anything, it can help assure a client that when the adviser really is delivering advice, they are doing so with confidence.”

Long time readers might recognize I like the medical analogy.  Over the course of time -- a couple of times recently -- I had interactions with someone lower in the "food chain" than an MD.  In my cases I saw some PA's -- Physician's Assistants.  On one occasion the PA "did his thing."  I was done.  Healthy and happy.  On another occasion a different PA sent me to his supervising MD. 

The analogy is important. I have been active and licensed as one of the "Financial Folks" since 1989.  I also happen to have a CLU in addition to the CFP®.  So I will readily take on areas in which I feel competent.  But I am not a Tax Preparer, CPA or EA.  So for that area, I will quickly point a client to their own, or help them find one.  Also, I'm not an attorney.  I can't give legal advice or draft documents. 

The Team Approach ends up being critical.

Many very fine Investment Advisers do not have the CFP®.  Nothing wrong with that.  They also could have potentially learned Financial Planning in some other way.  But it is important that they not do a Financial Plan if they are not competent to do one ... even if their investment expertise is staggering!

It is also important to realize that investment management can and often should be part of ongoing implementation and monitoring of a Financial Plan.  But the Financial Plan has to come first.  Otherwise, your "doctor" is giving you treatment before you get a diagnosis!  Oops!

Here is my more detailed post ...

A CFP® verification can be found on the CFP® Board website.  So if your investment "Folks" are not a CFP®, and you are receiving ongoing investment management, ask them where / how they received their Financial Planning expertise? And when was your Financial Plan last updated and reviewed with you?

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