What Fiduciary Really Means

I’m going to be professionally candid with you in this column because we need to have a conversation about the fiduciary issue. This is important because it’s not going well, my friends, and it’s not going away.

For this discussion, I’m asking you to set aside the question of regulation. Forget your feelings about the government meddling in your business. Forget your political persuasions and how you feel about our current president (or the previous one).

Set all that aside.

Instead, I want you to think about how the people we serve as an industry view this fight.

I'm talking about your current clients and clients to be. It starts with understanding that if someone takes even 10 seconds to look up the word fiduciary, they'll see words like trust and relationship. They'll see phrases like putting clients' interests first and avoiding conflicts of interest.

Now, if that is what fiduciary the word means, tell how in the world you could possibly make an argument against it!

Please. I’ll wait.

Now, I know that much of what some in the industry are fighting is not the idea, but regulating the idea. Of course, trying to regulate ethics doesn’t work. We all know that. Often, regulation gets cumbersome and misses the mark. We all know that, too.

But remember that we’re setting all that aside for a minute. When we say things like, “Having a fiduciary standard will make it too expensive to serve segments of the market,” you need to understand what real people hear. The same applies to any of the other arguments against it. What people hear is an industry arguing against putting their interest first. They hear us arguing against trust. They hear us arguing for a business model that relies on the regulatory ability to rip people off. That is what they hear.

Look, I know that is not what you’re saying. But it is what they hear. I know. They’ve told me. I’m suggesting we stop for a minute and consider the damage this argument has on the already sullied reputation of our industry. All over the world, people are asking us a simple question: Can we trust you?

Actually, they’re not asking. They’re demanding, begging, pleading with us to be worthy of the trust they want to give us. People want products, services, and advice that will help them make better decisions with their money. They want us to help them.

The question remains: Are we up for the challenge? That, my friends, is what people mean when they use the word fiduciary.

This article originally appeared in the April/May 2017 issue of Morningstar magazine.