Fiduciaries, Who Are They? Show 38


When I was a kid my cousin Elijah loved David Robinson and the San Antonio Spurs. One day when I was at his house, he gave me some NBA trading cards. That’s when I started following basketball.

Somewhere along the way my mom started watching the Charlotte Hornets with me. We eventually started going to the games at the old Coliseum in Charlotte. Below I’m pictured as a kid with Muggsy Bogues, the Hornets’ point guard in the 1990s.

I vividly remember the first time the Hornets made it to the playoffs in 1993. With seconds to go, Alonzo Mourning sunk a game winning shot and fell on the ground with his arms in the air. It was an electric moment. Watch it here.
Well, the Hornets’ owner started arguing with the city over an arena and eventually moved the team to another state. I lost interest with sports after that. I’m not sure why, but I’ve never followed sports closely since then.
Tom Brady’s phenomenal achievement of winning yet another Super Bowl has been consuming headlines. I could not help but reading about him. I normally pull for the underdog, but how can you not want this modern miracle of a man to continue? His self-discipline is something to be studied. His day is meticulously scheduled and strictly adhered to. But another aspect got my attention recently. Yahoo Sports ran an article titled The unglamorous life of Tom Brady: From cleaning toilets to hauling cement.

The article talks about Brady’s college jobs. One them was working in construction. He was asked to, “scrub an auto parts factory restroom blanketed by layers of construction debris, grime and who knows what else.”

 

The article said he cleaned the restroom until the “toilet and urinal gleamed.” There was nothing that Brady wouldn’t do for his construction site boss. He hauled heavy cement in blistering heat and cleaned up job sites where partiers from the night before had trashed them.

 

He worked various odd jobs to gain job experience if football didn’t work out for him after college. I didn’t know this until reading the article that he interned for a financial advisory firm. He would get all of his work done at the office where he was interning and ask for more to do. His co-workers said he was humble, likable and hardworking.

 

We all want our team to win, but it may be worth considering the role model Brady is to young people. We could all benefit from following Brady’s example of self-discipline and his work ethic.

 

In financial services there’s confusion around what a “fiduciary” is. In fact, I try not to use the word because it’s so misused and misunderstood.

 

I’ll explain what a fiduciary is here without all the jargon. The definition was first placed into law a few years after the Great Depression. The government codified laws to guard against another financial crisis.

 

We understand that the meaning of words evolve, so an eighty-year-old law may have language that needed updating. In 2019 the Securities Exchange Commission (SEC) adopted a new interpretation of what fiduciary is.

 

It is also confusing due to different marketing campaigns around financial advising. Sometimes fiduciaries are marketed a certain way and consumers may face challenges understanding terminology.

 

The SEC highlights the duty of care and the duty of loyalty. The loyalty part means that the adviser should not put his interest ahead of yours, and to disclose any conflicts of interest.

 

For example, if I were heavily invested in the stock of Starbucks Coffee, it may be in your best interest to know that if I were advising you to invest in Starbucks. Or if my compensation incentivized me to direct you to invest a certain way, the law requires that I disclose that to you.

 

The SEC doesn’t say that there cannot be conflicts of interest but that they should be disclosed so the consumer can make the decision of whether to follow the advice even though there may be a conflict of interest. It sounds intimidating the way the government puts it, but here’s an example from another profession. If you had a wart growing on your foot, you may make an appointment with your primary care doctor.

 

The doctor may be able to effectively treat the wart, but she may tell you to go see the foot doctor (podiatrist) who specializes in treating your issue. Similarly, there are things that I don’t do as advisor or things that you would benefit from having the help of another professional. When those things come up I’ll refer clients to other professionals.

 

The duty of care part means you always serve the best interest of the client based on the client’s objectives. “The application of the duty of care, however, may vary based on the scope of the client relationship.” Some people may be able to do part of their financial planning on their own, and some may require the advisor do everything. People come to me for various parts of their overall financial planning needs. Some people come to me for help with part of their portfolio and others want a comprehensive plan.

 

In all reality, the topic of what a fiduciary is hinges around how an advisor is paid. When you understand how an advisor is paid, it may aid you in understanding the type of investing philosophy, advice the advisor offers and what type of investors the advisor is accustomed to working with.

 

This will vary from advisor to advisor. It’s important to be paired with an advisor that matches your investing and planning preferences.

 

Lori A. Richards, a SEC regulator once said, “I suggest that an adviser, as that trustworthy fiduciary, has five major responsibilities when it comes to clients. They are:

  1. to put clients’ interests first;
  2. to act with utmost good faith;
  3. to provide full and fair disclosure of all material facts;
  4. not to mislead clients; and
  5. to expose all conflicts of interest to clients.”

 

To me it comes down to the Golden Rule, “Treat others how you would want to treated.” I believe everyone deserves to work with an advisor who looks out of their best interest. Our pledge to our clients: To always treat them as we would want to be treated.

 

If you’d like to speak about this topic or ask a question just reply to this email or call our office at 864.641.7955. I’d love speak with you!

 

Until next week,

David C. Treece,
Financial Advisor

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