The Fiduciary Duty in Ordinary Weeks

Brent O’Mara’s October piece on Blogger starts with a business owner laying an advisory agreement on the table and asking what fiduciary commits an advisor to on an uneventful day. The author answers briefly that the standard is an obligation carried inside every recommendation, and at length by walking through the places it surfaces when no one is looking.

The piece splits the obligation in two. Care comes before advice, in the patient work of learning a particular household, its company and its existing commitments; an advisor who skips that is counseling a category, not a family. Loyalty is simpler to define than to honor: when the client’s interest and the professional’s diverge, the client’s prevails, which is the single moment the question arises. The word promises neither sound advice nor a modest fee, the piece adds, and the obligation follows every later recommendation rather than stopping on the day of signing.

The Securities and Exchange Commission’s 2019 interpretation of the standard of conduct for investment advisers under the Investment Advisers Act of 1940 set out the Commission’s view of that duty,² and the 2018 proposal that preceded it paired a best interest rule for brokers with an interpretation reaffirming the fiduciary duty advisers owe their clients.¹ Kiplinger summarizes the Commission’s position as duties of care and of loyalty.⁴ State securities administrators note that anyone licensed as an investment adviser must by law act as a fiduciary, while brokers and planners occupy distinct roles.⁶

Figure

Two duties and what the public record adds

	What the piece says	What an outside source adds
Care	Understanding a particular household before any recommendation exists	The 2019 interpretation describes the adviser's standard of conduct under the Advisers Act of 1940
Loyalty	The client's interest prevails wherever the two part ways	Anyone licensed as an investment adviser must by law act as a fiduciary
Proof	One conversation cannot show the duty is being met	A relationship summary has to be delivered when the relationship starts

In an ordinary week, the piece says, the obligation sits in dull places: in which recommendations are offered at all, since the right one for a family sometimes earns less; in whose situation sets the yardstick, because what suits a two salary household may be wrong for one living on the uneven income of its own company; and in saying out loud that a request is unsupported by the plan. Where several generations share one advisor, the author wants it stated whose plan is under discussion, since help to the parents can come at the cost of the children and the reverse. Reopening a plan after a death, a sale or a new diagnosis counts, in the piece’s account, as the obligation being met, not a favor granted.

The closing section is about limits. A standard names an obligation, and an obligation does not by itself make one recommendation right; two advisors may each satisfy it and still differ on the order in which a company should change hands, since no rule supplies judgment. The measure, the author concludes, is patience over years: did the awkward recommendation come when it was needed, and was the plan reopened before the family asked. Investors can at least read the relationship summary that the Commission requires advisers and brokers to deliver when a relationship begins,³ and CNBC’s account of one survey suggests the reading is needed, since fewer than half of respondents could correctly define a fiduciary and a fifth thought the word meant the same as financial advisor.⁵ Because the choices resting on those ordinary acts, the taxation of an account, the design of an estate, the conditions of a sale, turn on individual circumstances, the piece leaves them to qualified professionals.

The original piece is on his Blogger site.