Every once in a while I get an email from a prospective client who has a list of questions they want to ask before they will engage with me. Usually, the list is copied directly from an article they read such as ’10 questions you must ask your financial advisor’. One question always asked is if I have a fiduciary duty to my clients. There is no explicit fiduciary duty owed to your clients in Ireland but let’s have a look at what it means.
Putting the client’s best interests first
The very first principle in the Central Bank’s Consumer Protection Code (CPC) states that a regulated entity must act “in the best interests of its customers“. All financial advisors must adhere to the CPC, so if you believe they are not acting in your best interests they are in breach of the CPC.
Acting in a client’s best interests requires evaluation from a client’s point of view, taking your client’s specific situation into consideration.
Acting with utmost due care and in good faith
An advisor must act with honesty, show diligence in the work that they do and show a duty of loyalty to their clients. That is, they must do what is right for them over the long term.
It is not enough to just do the minimum amount for your clients, you have to go that bit extra. A good analogy I heard was if you go to buy a new suit. Just getting a suit that fits isn’t enough, you want a suit that both fits and looks well on you.
Never mislead a client
No exaggeration, or just show them the upside without showing them the downside. This is also a general principle in the Consumer Protection Code “do not recklessly, negligently or deliberately mislead a customer as to the real or perceived advantages or disadvantages or any product or service”.
Full and fair disclosure of all material facts
This is anything a client might find an important factor in making a decision. This includes fees. And putting it in the small print is not enough, which is what some advisors do to hide what they are being paid; bury it in the mountains of paperwork they give you and hope you don’t see it.
If you are using an expert for advice, you expect them to be paid, so why should they hide what they are being paid?
Disclose and manage fairly all conflicts of interests
Conflicts happen, it doesn’t necessarily mean the end of the relationship. It’s how the conflicts are managed that is important. In dealing with conflicts an advisor should not put their interests ahead of those of their clients.
Strive for the best solution for every client
An advisor should make sure that they have all the facts in place before they can give advice to their client. Every client that talks to you should be treated the same
And the advice they give should always be the right thing to do. There is a very simple test for this “would I advise my parents to do this?”.
What do you think, should there be an explicit fiduciary duty for advisors in Ireland or is acting in the best interest of clients enough? What obligations would you like to see on financial advisors in Ireland? Let me know by dropping me an email at [email protected]
30 October 2017