What Tony Robbins should remember when he talks 'fiduciary'
The five-syllable word represents an attitude, way of life and something you should grasp for the good of investors
Fiduciary Advisor Advocate
These are 5 of the 10 Fiduciary Commandments- if anyone wants to see the rest of them visit www.faadvocates.com look under about FAA- I cut and pasted this so if there are typos my bad but you’ll get the idea
1. Understand and Document Intention of Assets
• Document stated objective
• Identify Investment time horizon
• Identify risk of loss tolerance •
It’s not Ok to:
Advise without a thorough understanding of the investment pool
• Fail to document
• Assume long time horizon and high risk tolerance
• Ignore or inadequately understand specific requests such as social guidelines, restricted activities etc.
• Ignore or misunderstand tax considerations
2. Formulate Investment Policy Statement
• Documents investment guidelines
• Documents acceptable investments
• Identifies individuals involved in overseeing assets
• Identifies all involved as Fiduciaries
• Documents exception rules
• Delineates roles and responsibilities
It’s Not Ok to:
• Rely on a ‘proposal generator’
• Provide the Investment Policy Statement ‘short version’ excluding important considerations
• Invest assets without a formal investment policy statement which is agreed to by all parties
• Misalign Investment Policy Statement with spending requirements of the asset pool
• Set it and forget it.
3. Determine Prospective Capital Market Assumptions
•Document process used to develop prospective risk/ reward assumptions
• Process must adhere academically sound, well vetted theory and practice
• Review capital market assumptions annually at a minimum
• Document qualification of individuals, organizations and technology employed
It’s Not Ok to: • Invest assets without formal capital market assumptions
• Rely on historical relationships to portend into the future
• Derive capital market assumptions without a rigorous, academically sound process.
• Copy someone else’s work
•Document process used for implementation
• Ensure appropriate investment vehicles are employed
• Control implementation costs i.e.: trading
• Implementation adheres to guidelines set forth in IPS on an ex-ante (before the fact) basis
It’s Not Ok To: • Assume the custodian or brokerage firm will implement in the best interest of the client
• Utilize inappropriate share classes or investment strategies
• Fail to monitor implementation vis a vis the Investment Policy Statement
• To utilize a UMA structure or overlay manager which does not take a fiduciary position
•Disclose and document all fees paid by asset pool including custodial, embedded and explicit management fees, advisor fees etc.
• Document on a quarterly basis who, how and for what each entity is compensated
• Annual review of all fees, vendor and manager relationships.
It’s Not Ok To:
•Assume embedded mutual fund or ETF fees can be ignored
• Ignore new share classes which can reduce client costs
• Collect any fee (12b-1, finder fee, transaction fee) from any vendor without clear, understandable disclosure
• Assume the prospectus covers your disclosure requirement
Knut’s comments are well reasoned, yet isn’t the real issue plaguing fiduciary duty, the absence of actionable authenticated (by statute) support for fiduciary duty. This support would establish professional standing and would resolve the technical and an ethical dilemma of retail brokerage of brokers neither (a) being accountable for their recommendations nor (b) their acknowledging their ongoing fiduciary responsibilities in the best interest of the investing public as required by statute.
Pat Mulvey of FAA (Fiduciary Advisors Advocates) fills this leadership vacuum by legitimately advancing the support infrastructure essential to support fiduciary standing (presently required by statute and now in use by advisors in the $100 million and up market) for all investors not possible in a brokerage format. Let’s encourage Tony Robbins to beat the drum on Fiduciary duty, and rely on Pat Mulvey of FAA and other such firms to technically make fiduciary duty actionable. The important point is we do not have to wait on the SEC, FINRA or the brokerage industry to do the right thing, as they will not. The question Wall Street fears is: is there a commercially viable critical mass of like minded advisors who are compelled to act in the best interest of the investing public as required and authenticated by statute. When Advisors are properly resourced, they control their value proposition, cost structure, margins and professional standing in the consumer’s best interest then there is no question that fiduciary duty will prevail as it is in the consumers best interest. Faster, better, cheaper and far more reliable counsel results in the clients best interest.
The free market is the solution.
Every consumer wants their best interests to be served. Advice is not just flipping mutual funds as broker/dealers suggest. A new generation of firms like FAA are emerging that go far beyond TAMPs which can actually help advisors defend their fiduciary standing and fulfill their fiduciary duty.
The new 'Tony Robbins' book debut coincides with Ajay Gupta revealing plan to retire, which leaves Creative Planning to keep the referral spoils with Robbins down to a 'with' credit on the cover
Peter Mallouk's and Robbins' book, 'The Path: Accelerating Your Journey to Financial Freedom,' was released this week through a new publisher and word got out that 50 year-old Gupta was departing with little explanation