How to Define a Personal Fiduciary Brand That Exceeds New Standards
We’ve always recommended that brokers and financial advisors follow the letter of the law. But, in the case of new fiduciary standards that go into effect on June 30th, we’re going to recommend a different approach.
New fiduciary standards are going to be based on a de-minimis standard.
The bad news – now everyone will be a fiduciary. The good news – there are hacks for that.
There’s nothing that precludes you from defining a higher standard, and creating your own fiduciary brand.
Why yes, I’m a fiduciary…and much more…let me show you how!
If you want to differentiate yourself, we would suggest the following 7 hacks:
1. Process
New fiduciary standards do not define a process, even though ERISA requires that you demonstrate the details of your decision-making framework. Suggested hack: Adopt a simple, universal decision-making process that also can be used by your clients to lead a team, department, division, board, or investment committee. This is the process we use:
2. Practices
ERISA specifically requires that your process be based on fiduciary best practices. However, new standards only reference about 25% of the fiduciary best practices that have evolved over the last 45 years. Suggested hack: Ensure your process includes fiduciary best practices that have been omitted [emphasis added] from new standards; such as:
- The identification of a client’s key decision-makers, and a determination as to whether they’re aware of their roles and responsibilities.
- The identification of all risks (not just market risk) that may keep a client from reaching their goals and objectives.
- The identification of all assets (not just investable assets) that may help a client reach their goals and objectives.
- The preparation and maintenance of the client’s IPS. Yes, that’s right – the most important function you perform for a client has been left out of new standards.
- A defined process for implementing the client’s IPS with prudent experts and service providers.
- A defined process to periodically monitor the client’s IPS, and to prepare reports that show a client how well they’re progressing towards meeting their goals and objectives.
3. KISS
New fiduciary standards are complex and verbose, and it’s very likely that compliance will require that you deliver to clients an equally byzantine disclosure statement. We know from analyzing engaging leaders that they have a greater capacity to simplify complex concepts. Suggested hack: When communicating with clients, ditch the industry and legal jargon.
4. Engagement
New fiduciary standards are based on moral obligations – do it, or else. In contrast, the fiduciary movement of the past 30 years has been based on moral aspiration – do it because you want to, and because it’s right. Suggested hack: Clearly communicate your sense of purpose; identify the core principles that support your purpose; and, never be afraid of showing passion for the work you do and for the people you serve.
5. Collaboration
New fiduciary standards merely require a reasonable basis to believe a recommended investment option or strategy is consistent with a client’s goals and objectives. Close enough, will be good enough. Suggested hack: Neuroscience informs us that being Collaborative is a critical leadership behavior that also improves the quality of decision-making outcomes. Devote time to not only help a client clearly articulate their goals, but also to ensure that the client’s objectives are aligned with their sense of purpose and core values.
6. Discernment
New fiduciary standards presume you’re incapable of being wise and objective. Discernment is going to be replaced with regulatory micromanagement. Suggested hack: Focus your energy on being a great leader and steward, and delegate the requisite compliance paperwork to staff.
7. Trust
New fiduciary standards also presume that you cannot be trusted. Complex disclosures will become the surrogate for trust. Suggested hack: Be patient and commit to the long game with an understanding that a client will only begin to trust you after there is evidence of your capacity for compassion, character, and competence.
Soon everyone will be a fiduciary…and yet, they won’t. There are hacks for that. Create your own fiduciary brand that exceeds new de-minimis standards.
Related: What’s the Difference Between a Clerk and a Fiduciary?