Being a fiduciary is serious business. And complex. But a recent blog entry boils it down to seven common sense rules for a fiduciary to keep in mind.
In “7 Rules Every Professional Fiduciary Must Follow,” Christopher Carosa of Fiduciary News suggests that complying with the legalities of serving as a fiduciary is not enough. “There are legal rules, then there are common sense rules,” he writes, defining them as “standards and practices that helps one excel in the front lines of the real world.” He offers seven rules he argues fiduciaries must follow.
Align compensation to a client’s best interest. Fiduciaries are legally obligated to make the best interest of their clients their top priority, notes Carosa, who writes that “Nowhere is this mandate so evident than in the area of compensation.” He further suggests choosing fee structures that help one to avoid the temptation to put others’ best interests ahead of those of a client.
Avoid conflicts of interest. A way to help achieve this, Carosa suggests, is to use a good fee structure. And he reminds that “A fiduciary must place the best interest of the client over any investment product.” However, he warns, an employer may interpret what constitutes a conflict of interest differently than its service provider, which could make it difficult to meet one’s fiduciary duties.
Know the client. One can only meet a client’s best interests, Carosa reminds, if one know what those best interests are. “It’s the fundamental fiduciary truism from which all other rules follow,” he writes. But there is a nuance to that, he posits. “The client in front of you might not be the beneficiary whose best interests you must serve, even if the client and that beneficiary are one in the same person,” Carosa says, and suggests that serving as a fiduciary may require balancing financial needs and the short-term and long-term personal goals of beneficiaries.
Be confident and know when to say ‘no.’ “As a fiduciary, you will be asked to make firm decisions that can dramatically impact the lives of those you serve. You need to do this self-assuredly,” Carosa argues, adding that doing so will inspire trust in a fiduciary’s actions. “Remember,” he says, “our concept of ‘fiduciary’ comes down to use through trust law,” and that that makes trust very important. In addition, Carosa says, sometimes this entails the necessity of saying “no” to a client.
Communicate. The most important thing in communication is quality, not quantity, Carosa says.
And one must remember that communication is mutual, which means that it “is a two-way street,” he adds. For instance, a client needs to keep a fiduciary informed about things that could affect the fiduciary’s understanding of what the client’s best interest is, and the fiduciary must keep the client informed about account activities.
Document. “Memories fade over time, so getting it in writing is a good way to subtly remind others of the basis of decisions,” Carosa says. He calls documentation a passive form of interaction.
Execute your role well and consistently. “The proof of your value, as they say, is in the pudding. Do it well and do it consistently and you may find other rewards soon follow,” says Carosa. He adds actions speak louder than words, and that “Anticipating actions well in advance of a deadline speaks well of one’s work ethic.”
In “7 Rules Every Professional Fiduciary Must Follow,” Christopher Carosa of Fiduciary News suggests that complying with the legalities of serving as a fiduciary is not enough. “There are legal rules, then there are common sense rules,” he writes, defining them as “standards and practices that helps one excel in the front lines of the real world.” He offers seven rules he argues fiduciaries must follow.
Align compensation to a client’s best interest. Fiduciaries are legally obligated to make the best interest of their clients their top priority, notes Carosa, who writes that “Nowhere is this mandate so evident than in the area of compensation.” He further suggests choosing fee structures that help one to avoid the temptation to put others’ best interests ahead of those of a client.
Avoid conflicts of interest. A way to help achieve this, Carosa suggests, is to use a good fee structure. And he reminds that “A fiduciary must place the best interest of the client over any investment product.” However, he warns, an employer may interpret what constitutes a conflict of interest differently than its service provider, which could make it difficult to meet one’s fiduciary duties.
Know the client. One can only meet a client’s best interests, Carosa reminds, if one know what those best interests are. “It’s the fundamental fiduciary truism from which all other rules follow,” he writes. But there is a nuance to that, he posits. “The client in front of you might not be the beneficiary whose best interests you must serve, even if the client and that beneficiary are one in the same person,” Carosa says, and suggests that serving as a fiduciary may require balancing financial needs and the short-term and long-term personal goals of beneficiaries.
Be confident and know when to say ‘no.’ “As a fiduciary, you will be asked to make firm decisions that can dramatically impact the lives of those you serve. You need to do this self-assuredly,” Carosa argues, adding that doing so will inspire trust in a fiduciary’s actions. “Remember,” he says, “our concept of ‘fiduciary’ comes down to use through trust law,” and that that makes trust very important. In addition, Carosa says, sometimes this entails the necessity of saying “no” to a client.
Communicate. The most important thing in communication is quality, not quantity, Carosa says.
And one must remember that communication is mutual, which means that it “is a two-way street,” he adds. For instance, a client needs to keep a fiduciary informed about things that could affect the fiduciary’s understanding of what the client’s best interest is, and the fiduciary must keep the client informed about account activities.
Document. “Memories fade over time, so getting it in writing is a good way to subtly remind others of the basis of decisions,” Carosa says. He calls documentation a passive form of interaction.
Execute your role well and consistently. “The proof of your value, as they say, is in the pudding. Do it well and do it consistently and you may find other rewards soon follow,” says Carosa. He adds actions speak louder than words, and that “Anticipating actions well in advance of a deadline speaks well of one’s work ethic.”
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