In December The Small Investor Protection Association (SIPA) put out a call for advisors to sign a five-point pledge originally developed by The Committee for The Fiduciary Standard. The pledge puts the interests of clients ahead of their own.
The question is whether advisors take the plunge.
“The Committee for the Fiduciary Standard believes that investors have a right to know whether or not their advisor is acting in their best interests. For those investors and firms that believe the same, the Committee has drafted a straight-forward oath declaring an advisor’s commitment to adhere to a fiduciary ethic and, in so doing, be accountable for the advice to their clients,” states the committee’s website. “We call on all advisors to provide a signed copy of this oath every time they enter into an advisory relationship with a client. Similarly, we recommend that investors insist the oath be signed by their advisors before entering into a relationship.”
SIPA has been authorized to share the Fiduciary Oath with its members. Based in Markham, Ontario, its goal is to help individual investors protect themselves against unscrupulous advisors.
WP explored this very idea in 2015 using a story from July 2013 as the backdrop.
The specific article
involved an insurance salesperson from B.C. by the name of James William Duke. The agent purchased a book of business from another agent in 2008. One of the clients transitioning to Duke Wellington Financial was a married couple with modest means invested 100% in segregated funds.
Over a nine-month period the husband went into the hospital and eventually died on July 23, 2009.
Shortly thereafter Duke held a meeting with the widow proposing that she buy several illiquid investments including an exempt market offering involving the development of real estate. These were investments that were only suitable for those who could afford to lose their entire investment. This was clearly not the case.
The Insurance Council of British Columbia concluded that “by facilitating the investment of such a significant percentage of the client’s funds [65%] into highly speculative securities, the licensee failed to act in the client’s best interests.”
The council suspended Duke for one year, fined him $1,925 to cover the council’s investigative costs, and ordered him to obtain either the CFP or CLU designation.
A question comes to mind.
Does an individual, simply by possessing a CFP or CLU designation, provide greater care and concern for clients? At least more so than someone without either of these credentials.
In a meeting with Toronto financial planner Scott Plaskett we asked the CFP charter holder for his thoughts on the first question. The 20-year veteran felt at first blush without knowing anything about the situation that it was a strange sanction.
“I don’t think it’s much of a punishment,” said Plaskett. “I’d like to think the CFP would be a requirement before you’re allowed to have a license to sell securities or [financial] products of any kind.”
Plaskett didn’t speak to level of care but it’s clear he feels the designation is a good hurdle for potential abuse by advisors.
Would a fiduciary duty prevent such events from happening?
No, but it certainly couldn’t hurt. The same goes for the CFP and CLU.
Note: To read the Fiduciary Oath, click here