Fiduciary Fight Part 4: Fiduciary Oath

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Fiduciary Fight

Bob Veres has a great article in Financial Planning Magazine about the issues associated with being a fiduciary entitled, “Give Up the ‘Fiduciary’ Fight “. In Veres’ article he writes:


Second, let’s create some clarity around who does (and who doesn’t) put the client’s interests first.

The best way I know to do this is to adopt advisor Harold Evensky’s “fiduciary oath,” or a similar document that NAPFA advisors are required to sign. You can find Evensky’s version online but you’re free to create your own.

Make sure you can hand your clients a signed commitment promising to put their best interests first, to act with the prudence, skill, care, diligence and good judgment of a professional; to not mislead them; and to provide conspicuous, full and fair disclosure of important facts.

The document would also promise to avoid conflicts of interest and manage, in the client’s favor, any unavoidable conflicts.

You sign this, and then, if you’re in a competitive situation, invite the prospect to take a version of this fiduciary oath to the brokers down the street and ask them to sign it. If they refuse, ask why.

I would hope, as this practice takes hold, that consumer reporters would ask brokerage firms why they won’t allow their brokers to sign such an oath.

Meanwhile, advisors can create an even clearer distinction. We would start by reaching a consensus on how to define a professional.

These standards should appropriately include minimum education standards, the fiduciary oath, compensation guidelines, appropriate disclosures, and standards of practice and procedures similar to what fi360 has created around fiduciary behavior.

Then create an organization, or use an existing organization, that will only accept people who meet those standards.

If 20,000 real professionals are willing to accept those standards — possibly adapting their practices to meet them — and join that organization, consumers would be less confused about who is and is not providing professional advice. The message should be: If you, Dear Consumer, work with a member of this organization, you’re dealing with a professional. If not, guard your wallet.

I attended my first NAPFA meeting with my father, George Marotta, even before I became a financial advisor myself. It was clear that here was an organization dedicated to serving clients better. There were no presentations on sales techniques. My parents became financial planners during the early days of NAPFA when financial professionals were looking for a better way to sit on the client’s side of the table than getting paid by collecting commissions on inferior products. In an effort to reduce conflicts of interest, NAPFA members take no money except the fee from their clients. They all sign a fiduciary oath.

A fiduciary is “an individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit.”

You deserve a fiduciary standard of care.

And although the industry tries to blur the distinction between a fee-only fiduciary and a commission-based agent or broker, you shouldn’t look to additional congressional regulatory oversight to help make the distinction clear.

It is simple for you to ask.

We think a fiduciary oath is a great way to make the distinction between fee-only fiduciaries and the rest of the financial services world clear.

We give a copy of  NAPFA’s Fiduciary Oath to prospective clients who are interested in our services. It is signed by the entire team of advisors.

We also recomment they use our ten questions to ask a financial advisor before engaging a competing financial advisor.

NAPFA offers a quick and easy way to find a fee-only commission-free financial advisor in your area. You can also look for someone who is an Accredited Investment Fiduciary.

If you’ve read nothing other than this blog post, you are better informed than the commission-based agents and brokers want you to be. You have no excuse for using their services to receive objective financial planning advice.

Photo used here under Flickr Creative Commons.

Follow David John Marotta:

President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.