Fiduciary Standards

The Fiduciary Fight?

Investors rarely know whether their advisor acts as a fiduciary, and that’s probably because they assume putting clients first already is the industry standard. But upholding fiduciary standards isn’t mandatory for all financial service providers yet, and investors often are in for a rude awakening when they learn that.

"I hear from clients who read about the [Department of Labor fiduciary standard] rule, and they’re surprised that there isn’t a fiduciary standard in all of our industry,” said Andy McClaflin (AAMS®, CRPC®), chief executive officer of Aspen Wealth Strategies and a Wealth Advisor & Branch Manager for Raymond James Financial Services. “They’re surprised suitability has been the standard for brokerage or commission business.”

A large subset of the financial services industry works on the “suitability” standard, which allows firms to steer clients toward products that offer brokers higher commissions. Fiduciaries, in contrast, put clients’ interests before their own, meaning that they select products to maximize client returns, not firm profits.

Few investors realize there’s a difference, however. Study after study show that investors cannot explain what a fiduciary is or what “fiduciary standard” means, a 2015 review by business news network CNBC revealed. Consumers also have been shown to rarely know whether their advisor is a fiduciary or not—but do report quickly dropping advisors they lack trust in.
McClaflin said that the fiduciary standard is “how things should be done.”

“Our industry should be held to a higher standard,” he said, noting that doctors, attorneys, and other professions have similar client-first duties or standards of care. “When you’re dealing with other people’s money there’s an inherent level of trust that people have to have in you.”

The Department of Labor last year proposed a new “fiduciary standard” that would require financial services professionals—including traditionally exempt service providers such as insurance or stock brokers—to act as fiduciaries when working with retirement accounts, IRAs included. The rule prompted considerable opposition from some corners of the financial industry, and detractors said it would expose some insurance and other service providers to lawsuits. The Trump administration delayed implementation of the rule shortly after taking office and has asked the DOL to rework parts of the measure.

Aspen Wealth Strategies provides customized, comprehensive wealth management services. Most of the firm’s clients possess “first-generation wealth,” McClaflin said, meaning they’re small business owners and other self-made types who hope to preserve the money they have worked hard to save. Aspen Wealth Strategies does not have a firm minimum investment and McClaflin said the firm looks to work with clients of diverse backgrounds and financial means.

“They’ve created their wealth on their own … They want to make a difference for themselves and they want to make a difference for their families,” he said, adding that the firm seeks clients who share the values of hard work, family, and wanting to make an impact on the world around themselves.

As a fiduciary, McClaflin takes educating clients seriously. Client financial literacy can be weak, and ensuring investors know what’s happening to their money matters, he said. New tools such as robo-advisors can assist in teaching clients how money works and where assets might be best allocated, but it still takes a person to guide investors when the going gets rough.

Automated investment tools appeal to people who want to feel in control of their finances, and they also work for a certain type of do-it-yourself investor, McClaflin said. But, the market’s chaotic churn can leave often-emotional investors feeling unsure of themselves. The uncertainty and fear caused by market-roiling headlines can push investors to make rash decisions.
“There’s certainly a need,” McClaflin said. “But as people start to generate wealth there’s a lot of room for mistakes to be made if you take into account the emotional side of investing and investor behavior.”

Developing plans for clients is a multistep process at Aspen Wealth Strategies. Investors can face unexpected problems, live far longer than expected, or even find ways to help try to stretch their portfolio for additional years. McClaflin said his firm takes a broad view of what could happen, and develops scenarios to test how clients will fare if worse comes to worst.

“A plan has to be fluid,” he said. “We run a lot of what ifs inside [the client’s] plan … What happens if we have the premature death of a spouse? What happens if we need long-term care? Stress-testing the plan is extremely important.”

Fluid plans allow investors to help adapt to changing circumstances in a controlled manner.

“Under different scenarios we might have to recommend a change to some of your spending … It’s our job to be able to communicate that,” McClaflin said.

Aspen Wealth Strategies uses a program called “Aging With Excellence,” to plan for the longer retirements clients enjoy now. McClaflin said that he often recommends new retirees to transition into a “hobby” job for a few years, which can delay their portfolio distributions and save considerable funds for the later years of their retirement.

Whether it’s retirement planning, savings, or investment management, Aspen Wealth Strategies seeks ways to give investors more choice, McClaflin said. The lack of consumer choice in finance is an area the industry lags, he said, and one in which his firm has tried to make a difference.

“People shouldn’t have to sacrifice quality for cost … There’s not a lot of choice I see that investors have,” McClaflin said. “People deserve more choices.”

For more information about Aspen Wealth Strategies see www.raymondjames.com/aspenwealth

Aspen Wealth Strategies is not a registered broker/dealer and is independent of Raymond James Financial Services. Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Opinions expressed in the article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice.  Raymond James is not affiliated with Matthew D. Edward or The Suit Magazine.

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