Who’s the Boss?Cliff Broetz, CSA, Senior Wealth Advisor, Leader Strategic Development
I still recall clearly, as a newly minted Insurance and Investment Advisor, back in the 1990’s, reading and accepting the Code of Ethics. In particular, the duty to ‘act in the best interest of the client’. Nothing else ever occurred to me (Advisors actually have to agree with this?) and I accepted it as perhaps a legal standard but most certainly as the ethical one. What other way is there? It is now with fascination, and some disbelief, I hear of the debate, within our industry, about adopting the ‘best interest standard’. It is only in the past few years I have come to understand the other way. The ‘suitability standard’. Within the licensing channel I work in, suitability is the standard from a legal standpoint. So, what’s the difference? With a best interest standard, otherwise known as Fiduciary standard, the legal obligation is to act in the best interest of the principal (that means you). With the suitability standard the obligation is merely to assure suitable investments – the investment strategy meets the objectives and means of the investor. In most parts of the world financial professionals have a duty to take steps that ensure that an investment is suitable for the client.
Which standard would you prefer in the management of your affairs?
Allow me to go further. Where I first started I had the investment products of one company to distribute. Before long, as my knowledge grew, I learned of better options outside the company I worked for. It was patently obvious to me that I needed to make a change. How can I act in the best interest of the client if better options exist beyond my particular product shelf? So, I seized my independence and made a change. The world opened up and my practice grew.
“Suitability may be the standard, but the only ethical path was the one of acting as a fiduciary – which is where I am, and I will defend it until the end of time.”
Even at this point I did not understand the suitability path I was on. I only understood that to be pure to acting in the client’s best interest, I needed to change firms. Many years down that path I was forced, again, to make a change. While things had been good, the firm was pushing their products and encroaching on my choices. Please understand that changing firms is a massive amount of work – but there was no hesitation at all. Best interest or nothing. Suitability may be the standard, but the only ethical path was the one of acting as a fiduciary – which is where I am, and I will defend it until the end of time.
The Commission-based Approach
During all this history, the other conflict I challenged myself on was the commission-based approach. This is a broad generalization, but the commission system inflates the client’s costs. Advisors do better for themselves, but it comes at the expense of the client. To me, once again, a better path is needed and longer term, will be the sustainable path. So, Fee-based Asset Management was the road taken. If commissions are stripped out the client gains on overall costs, liquidity and potential tax deductibility of advisory fee (for more information, please contact your accounting professional). The Advisor loses compensation but if done right, with care and patience, a better result comes for all sides (except those biased and restricted firms with high cost offerings). I mean, am I acting in your best interest or not? This is not a mixed thing, it is either all one way or the other – this is black and white.
As part of an Advisory Council, I was asked to read proposed new legislation and offer comment to my current investment dealer, such that they could prepare a company response. I took great satisfaction that the BC Securities Commission stood against the proposals for a National Regulator because they too, got stuck on this suitability/best interest point. The proposed regulation would allow Advisors to continue working within a suitability standard and dispense higher cost, commission based, proprietary offerings provided their titles reflected a reference to sales people, versus Advisor. What garbage! So, the discussion is still on and the rules are still being debated. Well, not in our office.
Only Our Best Performance Profile Solutions
We work to a fiduciary standard. We work tirelessly to find best performing, lowest cost, lowest risk-profile solutions for you. We will not accept restrictions or be channeled to a product offering other that what is best. We turn over every stone to put you first. It sickens me to see some of Canada’s largest financial institutions operate with forced quotas, bonuses for in-house bias, tied selling, high costs and poor advice. Minor differences in percentage costs/returns mean big differences to you. Yet these big institutions are the typical ‘default’ for most and many people deem them the ‘safe’ way to go. We are trying to find our voice and our platform to ask people to wake up. Check out the CBC Go Public website and read about the practices of some of Canada’s largest financial companies.
How to Pick a Financial Advisor
There are many important questions to ask when interviewing potential Financial Advisors. Questions about credentials, about tenure, about the services provided, the costs (if you get a straight answer) etc. The most important question is “who is your boss”? When you ask us that, the answer is YOU. You have every safety of a large and reputable company in behind us, to gain plenty of comfort for yourself, but they fully support our independence and their platform facilitates our fee-based approach. Our team takes this seriously and we work to the best interest standard. And while we are waiting for the Regulators to figure it out, we are absolutely, unequivocally and completely devoted, ethically and morally, to it. Our practice has grown rapidly for years – maybe there’s a link between doing the right thing and growing a great practice. Both sides of this equation can win – and we sleep well at night.