Fiduciary & fit: how to find the right financial adviser for your clients.

• Author: Chu, Patrick

Entrusting your client's financial matters to another professional is a difficult task. Deciphering between business models, fee structures and services is enough to make you want to pass the responsibility on to someone else. But as CPAs, we're protective of our clients, and want to help them when opportunities arise. Here are some key issues to consider when selecting the right partner to help you and your clients navigate the complexities of personal finances.

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Is the Adviser Held to a Fiduciary Standard?

The term "fiduciary" has been a hot topic over the past couple of years. Many people, both inside and outside of the financial services industry, do not quite understand what being a fiduciary really means. According to the AICPA, being held to a fiduciary standard of care means that an adviser has a legal duty to act solely in the best interests of the beneficiary. If a recommendation results in less compensation, it should not matter; the client comes first at all times.

A recent change proposed by the Department of Labor Fiduciary Duty Rule (currently delayed) requires that advisers maintain fiduciary responsibility over clients' retirement accounts. The proposal imposes tougher standards regarding management, products, documentation and fees for retirement accounts. But in practice, investment management encompasses both retirement and non-retirement accounts. So how can an adviser be a fiduciary to a retirement account, but have different standards apply to a client's non-retirement assets? For many individuals, their non-retirement accounts comprise the bulk of their assets.

The proposed DOL rule is a step in the right direetion and brings awareness to the importance of fiduciary responsibility, but it's not a solution. It's only the start of a comprehensive overhaul of the fiduciary standard and its application to adviser-client relationships.

For now, looking to the business structure first can help determine whether you arc working with a fiduciary. A Registered Investment Adviser (RIA) has a legal fiduciary duty to their clients, while broker-dealers abide by a suitability standard. The suitability standard is different than the fiduciary standard, in that an investment recommendation must only be suitable for a client; there is no legal fiduciary responsibility. This doesn't mean you can't receive good advice from a broker-dealer, but you should understand how legal obligations affect the client-adviser...