Fiduciary Commitment and Why It Matters

Strong Fiduciary Commitment – Why It Matters to Both Investment Firms and Investors

In a sad follow-up to a previous post, it seems like the somewhat two-faced arguments of the investment industry have for now, won the regulatory day.

With the death of Department of Labor Fiduciary Rules, my sad bet is that confusion is likely to continue to exist. It might even increase, as it relates to transparency about investment industry conflicts of interest:

Who comes first, the client or the firm?

Some might suggest that two-faced is too strong a term, but click here to see some of the many contradictory statements made by the industry, such as the ones illustrated at the top of this post.  Then let me know what you think.

Unfortunately, I think many in the investment industry have protested too much to the detriment of both themselves and the investing public.

As I wrote for the CFA Institute, a lot of contentious debate has occurred, and should continue, about who is a true fiduciary and who is committed to putting the interests of clients first.

Why should this matter to investors and why should the industry be just as deeply concerned?

Maybe the following findings from a CFA survey of over 200 investment management leaders and approximately 3,300 investment professionals help drive home the point:

  • Only 28% of respondents report staying in the investment industry to help clients.
  • Another 36% believe that acting in their clients’ best interests implies taking on career risk.

With responses like this, it is clear that the investment industry has a problem.

I hope fiduciary rules come that will help the industry act more in the interest of clients, but regardless, I think an easy, one word solution exists: transparency.

Investors should help drive this change by remembering that investment firms are not altruistic by nature.  Caveat investor is my spin on a maxim that’s a very old one for a reason.

If the problem of conflicts is tackled by both the supply side (investment firms) and demand side (investors), I hope this will change:

  • Only 11% of investment management leaders describe the impact of the investment industry as positive for society*

The industry should stop protesting simple, plain-language disclosures of conflicts. Every organization is capable of making them.

What’s my plain language message to those in the industry who resist this type of change?

Beware yourself.

Investors might force change by significantly reducing the demand for your services.


* From a recent survey of 1,145 [investment] industry leaders conducted by the CFA Institute. The complete white paper and findings can be found by clicking here.

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