I became a fee-only financial advisor in the early 1990s because I wanted my business to be built around one simple idea: putting clients first. That’s why I’m turned off watching peers spend millions of dollars marketing the fact that they’re fiduciaries — as if doing what’s right for clients somehow makes them unique.
Any advisor who doesn’t put clients first simply doesn’t belong in this profession and, in my opinion, should “go pursue excellence elsewhere.”
Regulations and disclosure requirements matter. They protect investors and create accountability. But I’ve always found it a little discouraging to assume advisors need a rulebook before they’ll do the right thing. Yes, every profession has bad actors. In my experience, though, the overwhelming majority of advisors genuinely want to help people improve their financial lives. And if you do that well — with integrity — you can make a good living.
Core Fiduciary Duties
A fiduciary is a professional legally required to act in a client’s best interest. Fiduciary responsibilities exist across many fields, not just financial services. Doctors, lawyers and real estate agents may all have similar obligations.
In wealth management, fiduciaries must act in their clients’ best interests by recommending strategies suited to each client’s financial situation. They must also avoid conflicts of interest whenever possible and disclose any conflicts that could affect their advice, including arrangements that may benefit the advisor financially.
Fiduciaries have legal and ethical responsibilities to manage client assets carefully, keep accurate records and remain focused on each client’s needs. When managing money, those responsibilities generally center on two core duties:
- Duty of care: Fiduciaries must make informed recommendations by reviewing the relevant details of a client’s financial life before developing plans or strategies.
- Duty of loyalty: Fiduciaries must not use their position for personal gain and must avoid recommendations that serve their own financial interests over the client’s.
When I left the wirehouses to become an RIA over 30 years ago, it was to get out from under a more transactional system where conflicts inherent in commissionable product sales, production contests and home team mandates were built into the model.
Acting in good faith and disclosing conflicts should be standard practice.
When I moved to a fee-only model back then, I was concerned about how clients would respond. But once I explained that my compensation would be tied to the performance of their portfolios, they understood the alignment and agreed it made sense. The transition was straightforward, and the model has since become common across the industry. Acting in good faith and disclosing conflicts should be standard practice. It’s not a marketing slogan to be shouted from a billboard but the basic price of admission to this profession that does so much for the American people.
Advisors who technically qualify as fiduciaries do not have a monopoly on high standards and ethical behavior. There are plenty of financial professionals in the wirehouses and broker-dealers who run terrific businesses and serve their clients with distinction.
That’s why I believe what is more important than a label is the trust that’s earned and maintained with clients.
Being Trusted Is The Goal
Not every conflict is harmful. The key is transparency. If a recommendation truly serves the client’s best interests, explain the conflict, explain your reasoning and let the client make an informed decision.
In more than three decades of advising, I can’t remember a client rejecting a recommendation after we had an honest conversation about why it made sense for them. Trust makes those conversations possible. Despite all the advances in technology, wealth management remains a relationship business, and relationships are built on trust.
One of the biggest mistakes advisors make is talking too much.
To build trust, you have to ask thoughtful questions, sincerely listen and then follow through on what you’ve learned. Clients rarely remember every chart you showed them. They always remember how well you listened.
You don’t have to constantly prove you’re the smartest person in the room. Clients generally assume you know your profession. What they’re really looking for is someone who understands them.
It’s also important to work with a firm that gives you the resources, expertise and support necessary to solve problems as clients’ lives become more complex. That support strengthens the advisor-client relationship because it allows advisors to deliver solutions with greater confidence.
If your firm’s primary message is simply that you’re a fiduciary, I believe you’re spending too much time talking about yourself and not enough time talking about the value you create for clients.
It’s easier to advertise a label than it is to earn trust.
“Fiduciary” has become something of a buzzword in our industry. It’s easier to advertise a label than it is to earn trust.
The advisors who succeed over the long term aren’t defined by what they call themselves. They’re defined by the promises they keep, the relationships they build and the lives they help improve.
Being a fiduciary is the standard. Being trusted is the goal.
Bill Sowell is Founder and Chief Strategy Officer of RIA Sowell Management.
