There’s a lot of furor in the US right now over the Department of Labor’s proposed legislation to make all those providing retirement advice in the US actually act in the best interest of their clients (I know, a crazy concept). \u00a0Regulators in Canada are also pondering the issue and no doubt we’ll eventually see some change here too. \u00a0But interestingly\u00a0most investors have no clue\u00a0that there are two different standards (fiduciary vs suitability). \u00a0You’d think people would without question want to work with someone with their best interest at heart. \u00a0There are relatively very\u00a0few who give advice in the investment industry either side of the border currently required by law to act in their clients’ best interest. \u00a0It’s not like this is a crazy idea – think doctors and lawyers – all required to act as fiduciary. \u00a0Now clearly being an official “fiduciary” doesn’t mean you’re perfect and there are certainly many advisors who don’t technically have a fiduciary responsibility that still act in their clients’ best interest, but the incentives are strong and studies suggest there’s something to this.<\/p>\n
Anyhow, I recently read an\u00a0analogy<\/a> written by Peter Lazaroff, a Forbes Online contributor, that I thought highlighted well the difference between fiduciary and suitability:<\/p>\n “Imagine you need a new car, but you don\u2019t know much about different options. You head to the closest car dealer, which happens to be a Ford dealership. The dealer asks you to describe what kind of car you need, and you begin listing features and attributes that are best described as a Toyota Highlander.<\/p>\n Under the suitability standard, the dealer could say, \u201cA Ford Explorer would meet all of your needs and we have some of those right over here.\u201d The dealer makes the sale and gets the commission. You have a car that is suitable for your needs, but it isn\u2019t necessarily what\u2019s best for you. Since you don\u2019t have a great deal of knowledge about the auto market, you are in the dark.<\/p>\n Under the fiduciary standard, the dealer would be obligated to say, \u201cIt sounds like you are describing a Toyota Highlander. We don\u2019t sell those. In order to get exactly what you described, you would have to go down the street to Toyota and ask for a Highlander. I can sell you a similar model called a Ford Explorer, it\u2019s more expensive and it isn\u2019t exactly what you described.\u201d In this scenario, you have more information about your options and the conflicts driving the dealer.<\/p>\n The Ford dealer has a clear conflict of interest in this situation. He can only sell Fords and will lose the opportunity to earn a commission if the client buys a Toyota Highlander. Under the suitability standard, the client ends up with a product (Ford Explorer) that isn\u2019t the best fit given their situation and it costs more than the better-fitting product (Toyota Highlander). Worst of all, the client probably has no idea that they weren\u2019t given advice that put their own interests first.”<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":" There’s a lot of furor in the US right now over the Department of Labor’s proposed legislation to make all those providing retirement advice in the US actually act in the best interest of their clients (I know, a crazy concept). \u00a0Regulators in Canada are also pondering the issue and no doubt we’ll eventually see […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,7,14,13],"tags":[],"class_list":["post-461","post","type-post","status-publish","format-standard","hentry","category-all-posts","category-graham-bodel-posts","category-investment-industry-issues","category-regulation"],"_links":{"self":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/461","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/comments?post=461"}],"version-history":[{"count":2,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/461\/revisions"}],"predecessor-version":[{"id":468,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/461\/revisions\/468"}],"wp:attachment":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/media?parent=461"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/categories?post=461"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/tags?post=461"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n