Where’s The Fire?

There has been numerous discussions about what the role of a fiduciary adviser is.

The financial services industry has been fighting the fiduciary standard for years. Well the fight appears to be over. Anyone working with someone’s retirement funds will be held to the fiduciary standard.

But what is the fiduciary standard? The answer to this question can be quite complex. Its definition is to always act in the best interest of the client. In the past the majority of the financial services industry was held to the suitability standard.

This suitability standard essentially puts the best interest of the brokerage/insurance firm first. Many in the industry have been basically financial salespeople. In that they give the client whatever they want. Regardless of whether it was in the client’s best interest.

These ‘advisors’ could sell anything as long as it was suitable. This opened the door to keep selling the latest hot product.

A true fiduciary adviser will develop a game plan for their client and provide the discipline to follow that plan.

Dan Wheeler of Dimensional Fund Advisors has a great analogy to explain what a fiduciary adviser does. Let’s assume the fiduciary adviser puts your best first.

Many investors question the value of any advisor when the market is going up. What do I need you for? They might say. And then when the market does go down. Why don’t you do something? Change something?

This is where Mr. Wheeler’s analogy comes in. Most municipalities have a fire station manned by firemen/women. When there are no fires these people provide no value. But when there is a fire these professionals go into action. They are trained to follow a process. To safely put out any fire.

This is the same for a true fiduciary adviser. When the markets are charging ahead investors wonder how their advisor adds value to their portfolio. But when the markets are declining or in a full bear market is when the fiduciary adviser adds value.

Your fiduciary adviser will keep you focused on the long term and ignore short term volatility.

This becomes a very difficult task when markets are declining or flat for many months.

It seems like the down or flat markets will never end. But they will end. When no one knows.

Keep in mind the S&P 500 has average an annual rate of return of around 10% over the last 80 plus years. And there are more up years than down years.

To succeed long term in investing you need to

  • Own equities and high quality short duration fixed income
  • Globally diversify.
  • Rebalance

This requires the help of an investor coach/fiduciary adviser to keep you disciplined when there is a fire.