Fiduciary Duty and
What It Means for You
It is commendable that these professional disciplines and perhaps others not mentioned here continually strive to raise the bar in the areas of integrity, fairness, and objectivity. In the case of the financial planning industry, many commit to similar professional standards but to the consumer it is often less clear. The consumer is left to discern and understand the subtle yet important differences among professionals who market themselves as providing financial planning services.
“Financial planning” is a phrase ubiquitously marketed in the financial services industry today. A simple Internet search for “financial planning” returns a seeming limitless number of organizations, professionals, and articles centered on this topic. While presumably serving similar purposes, these organizations and professionals holding themselves out as providing financial planning services are actually quite different in their objectives and the methods they use to accomplish their goals.
In 2007, the CFP Board’s Rules of Conduct were amended to require CFP practitioners to provide their financial planning services as a “fiduciary.” Specifically, CFP professionals today are required to act in the best interest of their financial planning clients and put the client’s interests ahead of their own when providing financial planning services. On the other hand, professionals who do not hold the CFP certification or another professional designation which requires them to place their client’s interest before their own can still market themselves as providing financial planning services.
The potential and natural consequence here, of course, is that the financial planning professional who is not held to a fiduciary standard is likely not required to disclose all of the material factors, such as compensation, which can help to shape the recommendations they are advising their client to consider. While it may not take a fiduciary standard to be imposed before a professional is willing to share material factors such as compensation with a client, the imposition of a fiduciary duty does help to reinforce what should and needs to be shared with a client so that they can make a fully informed decision.
So how can a client potentially benefit by engaging a financial planning professional held to a fiduciary standard? A quick example may help to shed some light on the potential benefits. Suppose Mr. and Mrs. Smith, both in their 70s, have a $15 million net worth, have done very little estate planning, and are concerned that federal estate taxes will erode some of the wealth that they hope to transfer to their son and to charity.
Most planning professionals would agree that there are numerous estate planning techniques and strategies that could be considered here to assist the Smith family with their goal of maximizing the transfer of their wealth to the next generation and charity in a tax-efficient manner. For illustration purposes, though, let us assume that a financial planning advisor who is not held to a fiduciary standard is only advising them to create and purchase a second-to-die life insurance policy owned by an insurance trust because the advisor is compensated by insurance commissions. On the other hand, a financial planning professional who is held to a fiduciary duty could certainly recommend a similar type of insurance trust strategy but the advisor would also be bound to share other relevant solutions such as charitable gifting strategies which provide no monetary benefit to the advisor.
At BB&T Wealth our financial planning services are spearheaded by our financial planning colleagues, many of whom are experienced CFP certificants, attorneys, and CPAs and our financial planning engagement agreements state that we are guided by and subscribe to the Rules of Conduct promulgated by the Certified Financial Planner Board of Standards, Inc. As you consider your financial plans and what structures and options may best suit your specific financial objectives, you can trust that your BB&T Wealth advisor and your BB&T Wealth team will review, discuss and suggest options that are intended to deliver the greatest benefit to you and your family.
This article originally appeared in the Summer 2013 issue of Wealth magazine.