Fiduciary duty is defined as a legal obligation of one party to act in the best interest of another. The obligated party is typically a fiduciary, that is, someone entrusted with the care of money or property.
Is your advisor a fiduciary? Chances are you have no idea.
Currently, the only Canadian financial professionals who are under fiduciary obligations, whereby they are required to act in the best interest of their clients, are those registered as Portfolio Managers with discretionary authority over their clients’ accounts.
When someone enlists the services of an Investment Advisor, they generally do so after making a conscious decision that the advisor understands their goals and objectives and has an approach and personality that they feel they can trust. In many cases, they made the right choice; however, what they generally do not understand is that the advisor is under no legal obligation to do what is in their best interest.
In the investing industry in Canada, the line between what’s best for the client and what’s best for the advisor is easily blurred. By having your investments managed by a registered Portfolio Manager, you can eliminate this conflict of interest.
Many investors assume that financial advisors have a duty to act in their best interests. But that’s not the standard regulators currently demand. Advisors in Canada are only held to a suitability standard. They don’t even have to recommend what is most suitable. They make a recommendation and you accept or reject it. There is no fiduciary obligation.
That’s a long way from explicitly mandating that financial advisors’ first obligation is to the client (a fiduciary duty) such as exists with lawyers, accountants and portfolio managers.
Too many investors in Canada are left in the dark about the fees they’re paying to advisors and the effect those fees have on their returns and their ultimate financial success. I can’t think of another industry where you don’t get a clear bill and you don’t know exactly what you are paying for.
Studies have demonstrated that many investors don’t have the knowledge to assess the quality of the advice that they are getting. Furthermore, a lot of people don’t understand what they are paying for. Many think the advice is free. However, nothing could be further from the truth.
The debate about whether to impose a fiduciary standard on investment advisors in Canada has raged for several years. Most investor advocates find it hard to imagine that any faults of imposing a fiduciary duty on advisors could possibly outweigh the merits of a system that would ensure clients’ interests are put first.
Many Canadian investors will likely continue to overpay for financial management and be subject to conflicts of interest until investors demand a fiduciary duty on the part of those providing investment advice in Canada by rewarding those who provide it and punishing those who don’t.
We believe that a situation in which an investor trusts a stranger to tell them what to do with their life’s savings is one that requires adherence to a fiduciary duty.
For this reason, all of our clients’ investments are managed by Investment Counsel Portfolio Managers who have a fiduciary duty to act in the best interests of our clients.