Fiduciary Duty is the legal obligation for one party to act in the best interest of another. As a Fiduciary, we always put your best interests first.
At Quinn Financial Planning (QFP), our firm has been operating in this fiduciary capacity since its origin and will continue to do so. QFP followed the Fiduciary Duty Rule before there was a Fiduciary Rule. We did not need the Department of Labor to tell us to act in the best interest of our clients.
What Are the Obligations of a Fiduciary?
As a Certified Financial Planner® practitioner, Quinn Financial Planning (QFP) is governed by The Certified Financial Planning (CFP) Board’s Code of Ethics and Rules of Conduct. The Code of Ethics outlines and enforces guidelines for financial planners that cover seven areas: integrity, objective advice, competence, fair treatment, privacy, professionalism, and diligence.
In the Standards of Professional Conduct, the CFP® practitioner promises a fiduciary duty to the client where the CFP® practitioner must place the interest of the client above the interest of the CFP® practitioner and at all times act as a fiduciary when providing financial advice, and, therefore, act in the best interest of the client. Furthermore, the CFP® practitioner must make specific representation as to the method of how they get compensated.
Our firm is a fee-only financial planner, receiving its only source of revenue from you, and never compensation from another company or person in any manner. This ensures the investor that the CFP® practitioner does not have a personal financial interest in selling a particular product, and therefore is not subject to influences outside of the clients’ interests.
Who Regulates and Enforces Fiduciary Duty?
The National Association of Personal Financial Advisors (NAPFA) advocates for policies that are important to the financial planning professional. Similar to the CFP® board, NAPFA requires its members to act as fiduciaries—that is, they must always act in the best interest of the client. Non-fiduciary financial professionals can recommend investments with higher fees, riskier features, and lower returns because they earn more money for the advisor, even if those investments are not the best choice for their clients. Based on NAPFA’s research of the White House’s Council on Economic Advisers, non-fiduciary advice costs investors $17 billion a year. This study showed that “nearly half of Americans mistakenly believe that all financial advisors are required to follow a fiduciary standard when providing advice.” And according to statistics from the Financial Industry Regulatory Authority (FINRA), an independent, nonprofit body authorized by Congress to protect U.S. investors, breach of fiduciary duty is the single most common cause of action alleged in arbitration cases.
Although these two organizations require members to follow these standards, it was not the law. It increasingly became an issue because, for many, traditional pension plans have been replaced by 401(k)s and Individual Retirement Accounts (IRAs). Responsibility for ensuring a secure retirement has effectively been transferred from employers to individual employees, and now the majority of many Americans’ retirement savings is in their IRAs. During this transition, some financial advisors would make recommendations or offer advice that may have been suitable for the client but also had a financial benefit to the advisor in terms of their compensation. Therefore, it became necessary that these accounts be regulated and protected.
Enter the US Department of Labor (DOL), who on April 6, 2016 released the long-awaited final Fiduciary Rule. In a fact sheet released with the new rules, the DOL pointed out the problem in the past. They said, “While many advisers do act in their customers’ best interest, not everyone is legally obligated to do so.” This new Fiduciary Standard, which is an expansion of the Employee Retirement Security Act (ERISA) of 1974, applies to all financial professionals, regardless of any association with a planning organization, who are considered to be fiduciaries.
What Constitutes a Breach of Fiduciary Duty?
Fiduciaries must put their clients’ interest first! The Fiduciary Rule is the DOL’s response to the tremendous changes in how Americans now save for retirement. Generally, under the rules, if a financial advisor is making a recommendation to a 401(k) participant or an IRA owner about the advisability of investments or rollovers and will receive compensation, then that advisor is a fiduciary. This means that an advisor cannot simply recommend a rollover from a 401(k) to an IRA to every client. Clients will need to be informed of the pros and cons of keeping their money in a company 401(k) as well as the benefits of an IRA rollover. While, for many clients, IRAs will remain the best choice, there is still a discussion that must take place.
A Look Back on Fiduciary Duty…
Formalizing Fiduciary Duty was necessary because financial advisors who did not have proven financial planning credentials or who did not belong to NAPFA do not always act in the best interests of a client.
Individuals who called themselves “financial advisors” generally had to meet a less stringent suitability standard. Adhering to the Suitability Standard, instead of having to place his or her interests below that of the client, the advisor has to reasonably believe that any recommendations were suitable for the client.
As a result, an advisor could have been swayed to make a particular recommendation based on the fees or transaction costs paid by the investor. In other words, even though many people in the financial industry say they have their clients’ best interest at heart, they still may have conflicts that impact their recommendations.
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A Note from Timothy Quinn on Fiduciary Duty
Founder of Quinn Financial Planning
In my opinion, the Fiduciary Standard is far superior to the Suitability Standard in terms of providing a benefit for clients because it better protects from advisors who may have a conflict of interests. The important part of this Fiduciary Rule is “acting in client’s best interest,” very similar language to the fiduciary duty which is the legal requirement imposed by the US Department of Labor (DOL) that all financial advisors must follow.
The Fiduciary Rule has been a staple of the CFP Board and NAPFA’s guidelines for many years. Only recently, thanks to the DOL’s 2016 update, has the Fiduciary Rule been generally accepted as the norm for all financial planners who offer investment advice on retirement plans.
We are proud to say that at Quinn Financial Planning (QFP), our firm has been operating in this fiduciary capacity since its origin and will continue to do so. QFP followed the Fiduciary Rule before there was a Fiduciary Rule. We did not need the Department of Labor to tell us to act in the best interest of our clients. That has been our practice since 2009. This is your hard-earned money, and you need someone you can trust to invest it wisely. When Quinn Financial Planning makes an investment recommendation, you can rest assured it is in your best interest, and no one else’s.
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“Quinn Financial Planning has been operating with fiduciary duty since its origin and will continue to do so. We followed the Fiduciary Rule before there was a Fiduciary Rule.”
– Timothy Quinn, CFP®