Explaining the fiduciary standard.
In any industry, you can often find correlations between someone’s behavior and the way they are compensated, and the financial industry is no exception. Understanding what you are getting when signing up with a certain kind of advisor is critical.
When working with Trust Point, there’s a financial term that you might hear—or read—more frequently than others. It’s one that is not used lightly by our team. You might even say it is the very foundation of our practice.
That word is: Fiduciary. In simple terms, a fiduciary is an individual or entity that is legally obligated to place their client’s interests ahead of their own.
A fiduciary with discretionary investment authority over a client’s account will invest the assets based on the parameters set with the client at the beginning of a relationship. That fiduciary will also provide ongoing advice as clients’ needs change over time and adjustments to the investment plan are required.
For a fiduciary like Trust Point, the privilege of managing someone’s assets comes with some obligations as well. A fiduciary has to disclose their fees, how they are compensated, and any other information that might be related to what is deemed a conflict of interest (of which Trust Point has none).
“At Trust Point, our philosophy is simple,” says Yan Arsenault, CFA®, CAIA®, and Chief Investment Officer. “We believe that in doing what is best for our clients, we will be doing what is best for Trust Point. We do not manufacture or sell financial products, such as annuities, insurance or proprietary mutual funds. We provide tailored wealth-related advice that meets the highest standards of objectivity, ethics and transparency.”
Who Regulates Who?
Over the years, the regulators have made strides to require a greater number of financial professionals to abide by the fiduciary standards.
“There are three main regulatory regimes that cover the financial industry in the U.S. today,” Arsenault says. Here’s a brief breakdown of how it works: Trust companies, like Trust Point, have a fiduciary duty to their clients. They are typically regulated by state banking authorities, the Office of the Comptroller of the Currency (OCC), the Federal Reserve or the Federal Deposit Insurance Corporation (FDIC).
Registered Investment advisors (RIAs), who also provide investment management and consultation services, also have a fiduciary duty to their clients. RIAs are registered with the Securities and Exchange Com-mission (SEC), or with state securities regulators if they manage less than $100 million.
Brokers do business under the Securities and Exchange Act of 1934 and are self-regulated by the Financial Industry Regulatory Authority (FINRA). Until recently, brokers were only held to a “suitability standard”. They were essentially sales-people compensated to sell products. In June of 2020, a new Regulation Best Interest (Reg BI) rule from the Securities and Exchange Commission (SEC) went into effect, requiring brokers to be held to a “best interest” standard of conduct with their clients. The gist of it: brokers must now put fiduciary principles in place without having to fully rise to the full fiduciary standards. For example, Reg BI does not ban brokers from selling products (and collecting commissions) but it will bring the legal requirements and mandated disclosures more in line with reasonable investor expectations.
Where Trust Point Fits In
Trust Point is an independent trust and investment management company regulated by state bank regulators—the Department of Financial Institutions (DFI).
Trust Point is a fiduciary, putting clients’ interests first. Our work creates no conflicts of interest—we do not participate in revenue sharing, commissions, or receive kick-backs on any of the investments we recommend to our clients.
Fiduciary duty is at the core of what we do every day. Whether our clients have a trust relationship or an investment relationship with us, the same fiduciary principles apply. Our business model and our company structure are built to ensure that there are no conflicts between our self-interest and yours.
It’s not unusual for clients to ask about this, but the reality is that the fiduciary standards of companies set up like Trust Point are commonly thought to be the strictest and highest in the financial industry.
If you work with a financial professional outside of Trust Point, it’s important to ask the right questions of the investment firm that will manage your money. This includes things like how they are compensated, if they have proprietary products, and if they are a fiduciary.
Without due diligence, you may not be getting what you thought you signed up for! But if you’re working with us, you can be confident that your financial plan is being managed in your best interest, always.
We are strictly regulated and have more than a century of investment experience and expertise. Simply put, we only do well if you do well. Our self-interest lies in helping to grow your wealth.