We think the term “fiduciary” will be one that’s heard more and more in future and, in the end, will be the required approach. It fits the “Client First” Principle in Code Standard 1 for AFAs and it’s the standard used in many jurisdictions now.
An article, written in the US, provides an easy way to understand some of the finer points of the fiduciary principle. In the US, a debate is raging about whether stock brokers should be required to join their adviser colleagues under the fiduciary “umbrella”. At present, a broker only needs to make sure an investment is “suitable” for a client before selling it to them.
Here’s the example:
“Imagine this scenario: You go to see a doctor for a problem with your liver. Doctor Alpha only applies a suitability screen. He prescribes liver drug A made by a company that periodically hosts the good doctor on cruise trips. But drug A is meant to cure the liver ailment; therefore, it passes the suitability filter.
Unsatisfied, you go to see Doctor Beta who goes beyond the simple suitability standard. This doctor evaluates the same drug A prescribed by Doctor Alpha as well as drug B and drug C. After reviewing your current prescriptions and your family medical history, Doctor Beta concludes you’re best suited for liver drug B.
Can you tell who is the fiduciary…?”
People from all over the world are getting on the band wagon. The legendary John C Bogle, now aged 80, of Vanguard fame (Vanguard offers index funds in the US and was the first to do so) thinks there’s too much speculating and not enough investing being done these days. He says “If short-term speculation is folly and long-term investing is wisdom, we’ve moved down the road from wisdom to folly.” Bogle is an advocate of buying investments where the index dictates the stock selection, holding the investments long term and not trying to outwit markets.
Readers will know that our portfolios hold “Core” investments which have very widely diversified index-based mixes of shares / bonds. We also have some “Active” holdings too.
Note: Within a few weeks, all advisers at will be Accredited Investment Fiduciaries (AIFs). This is a professional designation awarded by the Centre for Fiduciary Studies, which is associated with the University of Pittsburgh’s Centre for Executive Education. AIFs use a set of Prudent Practices designed to assist all investors and particularly those who act as Trustees/Stewards/Guardians for others.
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