Financial planning is still an emerging profession much like medicine was during the 19th century. Back then, it was difficult to distinguish between Doc Adams on “Gunsmoke” and Medicine Man from “The Wizard of Oz” (a.k.a. “the Wizard”). Yet, there was a huge difference. One took care of his patients; the other looked after his own self-interest with no ultimate concern for those he purportedly served.

That’s where we find ourselves today with financial planning, with those same basic types of financial “docs.” How do you know if the person who offers to guide you through the maze of taxes, investments, borrowing and insurance is a Doc Adams or the Wizard of Oz? 

It isn’t easy to determine who has your interests in mind. Everyone in the financial planning industry uses a similar title: financial planner, wealth manager, money coach, decision partner, investment advisor or financial advisor. Moreover, they’re everywhere—banks, brokerage firms, insurance companies and independent local firms whose allegiance is sometimes difficult to determine.

Ultimately, the differentiator is the F-Word: “fiduciary.” That single word determines who operates “in a box” and who has no protection from the box.

The Box
Here’s what I mean by operating in a box. The public harm caused by the investment scandals (and ultimately the market crash) of the 1920s spurred Congress to develop the regulatory scheme to which registered representatives are subjected today.

The rules and regulations established by this scheme metaphorically form a box.
If individuals, offering securities to the public, stay within the parameters of the box, they’re “safe” from liability and penalty. If, when a customer brings a complaint, the adviser can prove that they, in the words of the great philosopher Barney Fife of “The Andy Griffith Show” “obey all rules,” then they’re actually protected by the box. Caveat emptor, let the buyer beware!

More importantly, these individuals legally represent their principal. That is, the brokerage firm, the bank or the insurance company. They owe a number of duties to the firms they represent, chiefly the duty of loyalty to the firm—not to the client.

When push comes to shove, they know where their bread is buttered. Moreover, they have a legal obligation to butter it appropriately.

A New Model
Over the past 30 years, another group has come on the scene and turned this model upside down. They had this naïve notion of financial planning as an emerging profession. They were willing to subject themselves to serving clients under an entirely different standard; a standard built upon the F-Word, fiduciary.

Advisors who legally represent you as a fiduciary owe certain duties to you, the client, not to themselves or to their companies.

Here’s an example of those duties:

• The duty of utmost loyalty to and good faith toward the client;
• The duty to act solely in the interest of the client, not in their own interest or the interest of another (including their principal);
• The duty to not take a position in conflict with the client, unless the client with full knowledge of all the facts, consents; and
• The duty of full disclosure of compensation, costs and other conflicts of interest.

Get them to answer in writing, because unlike those who operate within a box, those individuals who represent you as a fiduciary have no protection from a box of rules. They have a simple standard question before making a financial recommendation: “Is this in the best interest of the client?” 

In my experience, most folks want their financial advisor to be straight with them and answer the following questions correctly:

“Will you take care of me?”
“Will you actually do for me what your marketing materials describe?”
“Will you just sell me something and leave?”
“Will you take advantage of me?”
“Will you treat me fairly?”
 “Will you keep your promises?”

The good news is there are a growing number of advisers throughout the state who understand the importance of the F-Word, live by the F-Word and deliver advice bound by the F-Word. The trick is you’ve got to find them. The only way you can do that is to ask directly the question listed above. In today’s environment, it’s a question you can’t afford not to ask.

Rick Adkins, CFP, is president and CEO of The Arkansas Financial Group, Inc. in Little Rock, Ark

Fiduciary, adj. Etymology: Latin fiduciarius, from fiducia confidence, trust, from fidere
Date: circa 1641: of, relating to, or involving a confidence or trust: as
a: held or founded in trust or confidence.
b: holding in trust.
c: depending on public confidence for value or currency.
Fiduciary, noun.: one that holds a fiduciary relation or acts in a fiduciary capacity.



April 2008

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