For many of us, the joy of buying a coveted new car is tempered by the experience of dealing with a salesperson. While you may be an unparalleled negotiator in your own field, few of us come away from the car-buying experience feeling that they got the best deal possible.
Why is that? It’s because, ultimately, everyone at the table knows that the salesperson, their manager, and all the other people behind the scenes have their own best interests at heart.
The same should not be true when it comes to managing a client’s investments. Unfortunately, many people offering guidance on financial and investment planning often tailor their advice so that they earn a commission or kickback for directing clients to make a particular investment. Which is why I feel so strongly about fiduciary responsibility.
What Does Fiduciary Mean?
Fiduciary is a word that many have heard, but don’t really understand the meaning of. The term comes from the Latin word, fiducia, which means trust. In the context of financial and investment planning it means an advisor should only be concerned with making their client’s investments grow, and that there should not be any backend commissions or trailer fees.
How do you ensure that your advisor is truly a fiduciary? Seek out those that have been certified by the Centre for Fiduciary Excellence (CEFEX). I’m extremely proud of the fact that Richardson GMP is the first (and so far only) wealth management firm in Canada to earn certification for fiduciary excellence from CEFEX.
The voluntary certification process involves an in-depth audit and onsite interviews with key personnel. The process is repeated annually.
Both the Portfolio Management Account Platform (PMAP) and the Separately Managed Account Platform (SMAP) are certified by CEFEX so you can trust that there are no hidden fees or commissions on any investments made.
Fiduciary trust is important for any client. But this is especially true for board members overseeing endowments, scholarship programs, and charitable foundations who already have a burden of liability. CEFEX certified investments give them the peace of mind that everyone’s best interests are being served.
Likewise for older Canadians who may have concerns that cognitive impairment could impact their financial judgement. Having a fiduciary advisor with no hidden agenda let’s them know that everyone is sitting on the same side of the table.
Best Practices for Fiduciary Standards
The Centre for Fiduciary Excellence has established the following seven precepts as best practices for fiduciary standards:
- Know standards, laws and trust provisions.
- Diversify assets to the specific risk/return profile of the client.
- Prepare an Investment Policy Statement.
- Use “prudent experts” and document due diligence.
- Monitor the activities of “prudent experts.”
- Control and account for investment expenses.
- Avoid conflicts of interest and prohibited transactions.