More of the "F" Word

There are some people who just can’t stand the “F” word. I’m not one of them. I want everyone to use the “F” word as often as possible, particularly those who hate it most; stockbrokers and insurance agents (who sell “investments”). This particular “F” word is good for you and potentially bad for them. 

The “F” word is “fiduciary.” It’s a complex word that is far from well understood. It doesn’t even have a decent synonym. The word has it’s roots in the Latin word for trust; fiducia, but its current usage involves more than just trust. 

A fiduciary has a legal responsibility to act in the best interests of those for whom he or she works or represents, above his or her own interests. Doctors, lawyers, and CPAs have a legal fiduciary duty to their patients or clients. They are required, by law, to put the needs and welfare of those they serve above their own. 

In the investment business, registered investment advisors (RIAs) must act as fiduciaries. They must put the client's needs first and offer the best recommendations based on each client's situation. No undisclosed conflict of interest is allowed. A fiduciary advisor may not profit from their position without their clients consent.

This makes any type of undisclosed fee or commission illegal in a fiduciary relationship. Plus, clients must be offered the best possible solution or product for the particular needs. Is it any wonder that much of Wall Street and virtually all of the insurance industry is vehemently opposed to operating under a fiduciary standard? “B” or “C” share “sales loads in drag” mutual funds would be almost impossible to sell. High hidden commissions on annuities and non-publicly traded REITs could no longer be collected. Rarely, if ever, could a tax-deferred annuity could never be sold within a tax-deferred retirement account. 

You may be surprised to know that the vast majority of those who hold themselves out as providers of financial “advice” are not required to act as fiduciaries. My own rough calculation based on Securities and Exchange Commission and Bureau of Labor Statistics (investment advisors, registered representatives, and insurance agents) put the percentage of investment advice providing fiduciaries at just over 15%. Rarely is your source of investment advice required to do what’s best for you. 

Wall Street and Big Insurance continue to fight against requirements that all purveyors of financial help act as fiduciaries. They toss around their well-worn hyperbole (verging on outright lies) about these proposed rules hurting the small investor through higher fees. They must be using some very creative math, because I am having a hard time find justification for their claims:

Non Fiduciaries:

  • Average “bare-bones” variable annuity fee: 2.5% annually
  • Average mutual fund load (commission): 5%
  • Average mutual fund annual fee: 1.2%


  • Vestory highest annual fee: 0.9%
  • Vestory average annual mutual fund portfolio fee: 0.3%

Unless they plan on charging ridiculously high fees for providing advice, how in the world can holding all investment advisors to a fiduciary standard end up costing more than the outrageous fees being charged by the non-fiduciaries of today.


Don McDonaldComment