Photo: D. Sharon Pruitt. Source: Wikimedia.
There’s lots of talk about fiduciary standards these days, but what does that actually mean? “Fiduciary” is one of those five-dollar words that my friends who took Latin used to throw at me when we argued about something. They would score debating points, but their words left me confused.
In fact, many of us are fiduciaries without realizing it. Parents are fiduciaries for their children. Teachers are fiduciaries for their students. Politicians are supposed to be fiduciaries for the voters they represent. A fiduciary is anyone in a position of trust, who is supposed to act on behalf of someone else – making decisions they would make, if they had the fiduciary’s knowledge and capabilities.
Fiduciary duties are a common-sense approach whenever someone is supposed to work for you. If we hire a contractor, we’re upset if they install cheap, drafty windows but they charge us for the expensive, triple-pane model. For some strange reason, many financial advisors aren’t legally considered fiduciaries, even though we trust them with our money. They’re paid commissions they don’t have to tell about and buy products for people that don’t make any sense because of a depression-era law that was a political compromise at the time.
Depression-era financial investigator. Photo: Harris & Ewing, 1935. Source: Picryl, Library of Congress
That law made financial products a “buyer-beware” commodity. Some folks in Congress want to fix it, but the by-products often make a hash of good intentions. When federal agencies get involved setting standards, the result is usually myriad rules, regulations, and exceptions that make the operating manual for a jet fighter clear by comparison. The Department of Labor fiduciary rules, for example, were written in the ‘70s when the Mafia controlled – and abused – a lot of labor-union pension funds.
All because common sense just isn’t very common. When you’re put in a position of trust, you need to act in the best interests of the person who trusts you. That’s what it means to be a fiduciary.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”