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Fee compensation is integral to fiduciary advice

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Article originally appeared on Advisor Perspectives

Daniel Razvi argues in Advisor Perspectives that no method of compensation is “better or worse” for fiduciary advice. He states, “Methods of compensation or conflicts of interest” … are not relevant to the “core concept of fiduciary.” This interpretation defies the origins of the law and Supreme Court that opined otherwise.

Razvi also makes the point that an advisor who looks in the mirror and sees an advisor who is “Trustworthy … honorable … knowledgeable … and gives good advice” … and he believes, “puts the client’s needs ahead of his own, “the Advisor is definitely a fiduciary.” This is fantasy, in my opinion.

He then claims proponents of a “new regulatory fiduciary standard argue strongly that an advisor’s manner of compensation is extremely important.” This is actually backward.

It is proponents of the original federal legislation in 1940 who took this stance, and it has been echoed by scholars, jurists, and policy experts today who stress the harmful impact of conflicted compensation to fiduciary advice.

The foundation of federal securities laws for investment advice and the importance of fiduciary duty derives from the Investment Advisers Act of 1940 (IAA). “Fundamental to the Act is the notion that an adviser is a fiduciary,” noted Robert E. Plaze, former deputy director of the Division of Investment Management of the SEC. A 2016 Fiduciary Institute paper discusses the importance of fiduciary duties and avoiding conflicts with the IAA.

Read more on Advisor Perspectives

Dan Moisand

 

Dan Moisand is a nationally recognized fiduciary fee-only financial planner, an Institute Real Fiduciary™ Advisor and Chair-elect of the CFP Board.

The Institute has enshrined the ‘Moisand Rule’ on fiduciary practices. It is basic and is more important today than ever: “You have to avoid conflicts. If I avoid a conflict, I don’t worry about it.”

Watch the video of Moisand speaking here.

Bob Veres

 

Bob Veres is a long term observer of financial planning. His Newsletter, “Inside information” Is a staple of leading planners. In the May edition he writes about fiduciary and the Institute.

"But a much bigger point is that the fiduciary standard—as Knut Rostad of the Institute for the Fiduciary Standard has pointed out—has been determined by the Supreme Court (1963 ruling) to be at the very heart of the Investment Advisers Act of 1940. It is the foundation of what it means to be an RIA registered with the SEC instead of a tipster or a tout."

- Bob Veres, Parting Thoughts ... The SEC's Own Compliance Culture