The Department of Labor’s “Fiduciary Rule[1]” is a welcome change.  It will require all financial advisors who manage retirement assets to put their clients’ interests ahead of their own. We strongly support this standard, but as Jason Zweig of the WSJ points out, simply serving as a fiduciary does not eliminate all conflicts of interest.

Zweig suggests that advisors be more upfront about those inevitable conflicts.  In the spirit of full transparency, we cheerfully accept his challenge:

Conflict of Interest #1: Our fees are determined by the assets we manage.  Because each client’s fee is calculated as a percentage of their investment portfolio, we have a conflict when advising clients on decisions that could affect those assets (for example, when helping a client decide whether to invest excess cash or use it to pay down their mortgage).

Our attempt to mitigate:  We approach all client recommendations by asking ourselves what we would do if in the client’s shoes.  Still, our firm’s policy is to openly state such conflicts when these types of decisions arise, if only to ensure that the client recognizes that it exists.

Conflict of Interest #2: Some clients pay more fees than others because they have more assets.  To the extent that our firm must decide how to allocate our resources across clients, we have an incentive to direct more of our resources to larger clients.

Our attempt to mitigate:  While this conflict is real, it is also partially by design.  Larger portfolios tend to suggest more complex overall financial pictures.  Given that we provide comprehensive financial planning services, client complexity requires time and effort from our advisors.

Conflict of Interest #3: We want new clients.  When speaking to prospective new clients, we have incentive to recommend our firm instead of a competitor, even if we believe that we’re not the best option for that client.

Our attempt to mitigate:  This one is easy.  We carefully defined our target audience, then built the firm that we genuinely believe to be the best option for those clients.  We frequently – and without reservation – turn away prospective clients who fall outside of our wheelhouse.

Recognizing our biases helps us to remain aware of them and, we hope, better equips us to overcome them.  We thank Jason Zweig for the inspiration.

[1] The Department of Labor (DOL) fiduciary rule, was originally scheduled to be phased in from April 10, 2017, to Jan. 1, 2018.   As of June 21, 2018, The U.S. Fifth Circuit Court of Appeals officially vacated the rule, effectively killing it.