The buzzword in India in the BFSI space is ‘Fiduciary’ and its fun. Should a fiduciary attend a training program in a luxury resort, along with his spouse? Obviously the training is just to ‘explain’ the product in congenial atmosphere. Oh, I know how business is done in this world. I love the regulators too. They create ample ‘training’ opportunities.
I can relate this to the ‘organic’ vegetables and other products that one gets these days. The ONLY organic stuff I know are organic are the ones grown in my friends farm and in my sister’s house. I know many people find it easy the soul when they see the words ‘organic’ or ‘fiduciary’. I know people with amazingly good intentions not knowing what is organic and who is a fiduciary.
The word “fiduciary” is now a promotional buzzword for brokers, financial planners and financial advisers. As an investor, you have to be MORE worried and vigilant — not less — now that everybody in the financial jungle is calling to say “I’m a fiduciary.” Calling oneself a fiduciary is easy. For a client to be sure he/she is a Fiduciary is just a prayer on the lips. Bank RMs are fiduciary too – after all the RM has no financial relationship with any fund house.
A fiduciary — comes from the Latin words fides (faith) and fiducia (trust) — is someone who must put your interests ahead of his or her own.
In my mind the word Fiduciary just means that this person should reveal all the income that he makes and avoid conflict of interest and DISCLOSE the conflicts that remain. This is such a mental thing. If I have to choose between 2 successful fund houses 2 ELSS schemes, there are times when EVEN the advisor cannot find out that he got subtly influenced by the mouse pad that he uses or the ‘Chairman’ club nudge that his relationship manager is dangling. I am not talking corruption here, I am talking nudge. How will an RIA escape this if he is a one man army, or the boss with serfs? Tough, i should think. Its time our regulator worried abour RIA corruption – the time for regulation should be before the first complaint. If the regulator tells me it cannot happen, I will accept it, and withdraw this article. After all the regulator is the boss.
Today if I were to re-designate my self I would love to call myself ‘Registered Consultant – Fiduciary’ assuring you that there is no conflict. If I were a client I would worry how come you were in Paris last week (this FB is such a give away) and who is funding your Berkshire Hathaway pilgrimage. I should also worry why you were so keen to ask me to buy an annuity with such a poor yield and why your assistant asked me to split that annuity in 2 names – me and my wife.
Of course if I ran a big wealth business I would call my sales team ‘Fiduciary Wealth Managers’ very soon. I would even encourage one University to create a ‘Certificate’ or a ‘Diploma’ (a degree is a little more complicated) and ‘confer’ this diploma on the people who pass a difficult (er, hum,..) 70 minute multile question test. Of course the 200 Q n A that was sent to you in a pdf contains all the 50 Q that would be asked. Do I need to tell you that we are tied life insurance agents and have an open architecture with ALL the 14 ‘best’ mutual funds. Just kidding.
Even in the US there are ‘fiduciaries’ who sell 8% commissioned products and 40% commissioned products. In India too there are ‘tied’ insurance agents who see no ‘conflict’ of interest in selling a pension plan, a child plan, a money back plan to a client. After all, 40% is a little blinding. After a few years thanks to the training the ‘tied agent’ cannot see a competitor product being better, or there being a conflict of interest. Even the customer gets lulled by ‘I have an agency of xyz, my wife has an agency of…., my father….my mother….and therefore sir ‘we will sell you the best insurance and the best mutual fund’. Nice to hear, of course, and lulling.
Believe me, this is the first article on RIA conflict, I can assure you it is the beginning of many. If you are a client build a good relationship with your IFA/RIA. If you are a good RIA/IFA build a good.. relationship with your client. What matters is good relationship – the other things fall in place easily
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