Why Do I Need an Investment “Fiduciary”?

A true investment fiduciary is all about putting the client’s interests first.

Too many investment advisors only pay lip service to the idea of “putting the investor first”; a true fiduciary has a legal and ethical responsibility to live up to that promise.

At HighView, we define a fiduciary as someone acting in a position of trust on behalf of, or for the benefit of, a third party; and as such, they are required to act in their best interests. A fiduciary is held to a higher standard of care than an advisor who is not a fiduciary.

Which Professionals Are Fiduciaries?

In Canada, specific wealth management roles are always fiduciaries; for example, trustees and discretionary investment money managers.

However, broker-dealers and other advisors (such as financial planners, investment advisors, etc.) exist in a grey area depending on their legal status.

It’s important to know that financial advisors who are not considered fiduciaries are only held to a Suitability Requirement, which means that as long as an investment product is suitable but not necessarily the best solution for the client, then the job of the financial advisor is complete.

With the rising standards of care from both clients and regulators, the fiduciary definition is receiving growing discussion and debate in our industry.

Canadian courts have identified five interrelated factors that determine whether a financial advisor has a fiduciary relationship with their clients:

1. Vulnerability: the degree of vulnerability of the client due to factors such as age or lack of language skills, investment knowledge, education, or experience in the stock market.
2. Trust: the degree of trust and confidence that a client places in the advisor and the extent to which the advisor accepts that trust.
3. Reliance: whether the client has a history of relying on the advisor’s judgment and advice, and whether the advisor claims to have special skills and knowledge upon which the client can rely.
4. Discretion: the extent to which the advisor has power or discretion over the client’s account or investments.
5. Professional Rules or Codes of Conduct: rules and codes that help establish the duties of the advisor and the standards to which the advisor will be held.

5 Reasons Investors Should Choose an Investment Advisor Who Is a True Fiduciary

As an investor, it is in your best interest to seek out an investment advisor who also has your best interests at heart.

A Consultation Paper published by the Canadian Securities Administrators (CSA Consultation Paper 33-403), states that acting in the best interest of the client, as a fiduciary, means that:

1. Client interests are paramount
2. Conflicts of interest are avoided
3. Clients are not exploited
4. Clients are provided with full disclosure
5. Services are performed reasonably prudently

These five elements mean that fiduciaries are independent and completely objective – they do not have obligations to anyone except their clients and they do not receive fees from any of the investment products or managers they recommend.

For investors, the benefit of having a fiduciary financial advisor comes down to this: peace of mind.

Turning a Critical Eye on the Investment Industry

We believe that it’s time for regulators to re-examine the application of fiduciary standards to various wealth management roles, due to the growing affluence of our society, the rising complexity of wealth management issues, and the trusted role that financial advisors perform in clients’ financial lives.

For a recent example, consider the Ontario Securities Commission (OSC) roundtable on discontinuing embedded commissions, which Dan Hallett of HighView participated in. Too many of the panellists were focused more on the investment industry and why a commission ban would be bad for the industry, rather than the real concern – the clients. Click here to find out more in Dan’s post-roundtable recap blog.

The notion of what it means to be an investment fiduciary — an investment professional who acts in the sole interest of their clients – will continue to gain traction in the wealth management industry and the media.

Investors are increasingly saying, “I want someone who I can trust and who puts my interests ahead of their own!” And they’re right.

HighView is an experienced fiduciary investment counselling firm committed to investor transparency. We would be happy to discuss our goals-based investment approach with you and your professional advisors.

Watch our videos about a variety of asset management topics.

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• The Investment Industry Owes Its Clients Better Treatment
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