Regarding the subject of when the fidicuary standard applies-I think the most intelligent article I have read on the subject came from Dan Moisand in the Professional Issues Column of the January 2008 Journal of Financial Planning.  He discussed the fact that "...practioners have to 'change hats'. Put more specifically, they are changing standards of care".  He went on to hit the nail on the head by saying "Many planners who do this are quite transparent and manage the conflicts in the system well and fairly".  I would like to think that is what I do.  For the most part, I am an insurance agent and RIA.  However, when I enter into a financial planning engagement, I have a process so that everyone, especially the client, knows when the engagement starts and when it stops.  When I am working outside of the financial planning engagement, the clients know I am an agent or an RIA.  It seems to work well and it is most conducive to a business model that makes competent (at least in my humble judgement ) financial planning available and affordable to many consumers who may not otherwise engage a fee-only planner. 

-----Original Message-----
From: Ronald Pearson [mailto:bounce-26221@fpanet.org]
Sent: Wednesday, February 27, 2008 8:08 AM
To: jrcoe@coefinancialservices.com
Subject: Re: [FPA_StandardConduct] Poll Question #2

Richard, I think a fiduciary should be paid, how much is determined by the client.  The fiduciary has a duty to let the client know all the ways the fiduciary is paid and any conflicts of interest.  Following your argument about charging less to its absurd conclusion would have you handing the client a financial planning book after an hourly charge and say do it yourself.  The CFP Board standards clearly indicate that CFPs working in a proprietary environment must communicate to the client the limitations on the CFP's choices.  Thus, by communicating these limitations (and all sources of revenue and conflicts), the commissioned planner can meet the fiduciary duty.  The CFP Board position seems to be that the commissioned CFP must have some knowledge of products outside their firm so as to explain the limitations that they work under in a captive environment.

As to "putting the clients first", the facts and circumstances govern.  If a client came to me with a need to invest, showed they were long term investors but were not interested in long term management, I will charge them an hourly fee to review their current situation and probably recommend a very good no load balanced fund.  A commissioned planner in the same situation might recommend American Funds.  Point is that client is getting an initial recommendation without ongoing support (other than statements).  This is far different from a client who wants ongoing support (an Investment Policy Statement, rebalancing, tax harvesting, quarterly or semiannual performance reporting, monitoring of the funds, etc).  Although many make the case that they are two sides of the same coin, I believe they are apples and moon rocks.  Facts and circumstances dictate which avenue to take; both can be done by a fiduciary.

-----Original Message-----
From: Duane Thompson [mailto:bounce-65670@fpanet.org]
Sent: Wednesday, February 27, 2008 11:29 AM
To: jrcoe@coefinancialservices.com
Subject: Re: [FPA_StandardConduct] Poll Question #2

I find this conversation about 1) how a fiduciary advisor can be paid, and 2) how much, fascinating.  First, I need to disclose that I am NOT an advisor, but an employee at FPA.  However, based on my experience working on regulatory issues over the years, I think the assumption that if you are fee-only then you must be a fiduciary is not always true.  The myth comes from the fact that 1) most financial planners are RIAs; 2) most RIAs charge fees; and 3) all RIAs are held to a fiduciary duty.  Therefore most (but not all) financial planners must be fiduciaries.  The sticky part of this assumption is the fact that most RIAs are also fee-and-commission, so the confusion arises when you are not acting as an adviser.  And this of course is what the CFP Board is grappling with at the moment.  On the brokerage side, a stock broker can occasionally be held to such a duty when charging commissions, but it is on a facts and circumstances basis, not a blanket duty.  Nor is an insurance agent is typically held to a fiduciary duty, except to his/her firm.

Whether or not a financial planner is always a fiduciary to the client, however, is not clear, even if you are fee-only and a CFP certificant, and self-declare that you are a fiduciary.  The FPA task force's case law research suggests that planners are fiduciaries, but there is no comparable landmark case confirming this, such as the well-known '40 Act case, SEC v. Capital Gains Research Bureau (1963), in which the Supreme Court clearly held investment advisers to a blanket fiduciary standard. 

The CFP Board's response to all of this, in adopting a fiduciary standard, is in devising guidance on when the fiduciary standard applies and when it doesn't.  By establishing a 'material element' of financial planning as a threshold for being a fiduciary, the CFP Board has moved the bar significantly higher than where it was before.   However, the CFP Board's FAQ goes to great lengths to provide examples of when the certificant may not be held to a fiduciary standard (such as when selling an insurance policy to a new client).  Some certificants will probably disagree strongly with the CFP Board that you can conduct an adequate needs analysis for life insurance without making certain other broad inquiries about a person's financial situation, but that appears to be the CFP Board's stance at this point. 

Regarding how much you can charge without violating your fiduciary duty of loyalty to your client is probably contingent more on your qualifications and experience than on what the market will bear.  If you are a newly minted RIA fresh out of college, and you attempt to charge $500 an hour for the same identical services as the veteran investment manager down the block who charges $250, then I suspect a court or arbitration panel might strongly consider a breach of fiduciary duty.  ERISA and state securities ethics requirements generally require the fee charged by a fiduciary to be 'reasonable.'   At the other extreme, although I haven't seen any case law on this, I would think that even if you provided services for free, such as in a pro bono engagement, there is a good chance that a court or arbitration panel would hold you to the same standard of care as a fiduciary to a paying client.

 

 Hi Michael

perhaps you wanted to say: Tutto bene!!  isn't it??

I do not know if it is   Tutto Bene/everything O.K.

nevertheless  what I have written is what I think 

Ciao

Giorgio 

As a fee-only practioner, the implications in both cases are that the rest of the financial planning profession will move toward my way of operating. In my opinion, this is a great step forward.