Lead Advisor Jon Evans Asks, lead Advisor Phil Kruzan Answers

1. We have been hearing a lot about the term “fiduciary” in the news media recently, can you shed some light on why this is an issue?

In our industry, I think we have done a really good job of confusing the public by using sophisticated terms, words, and phrases about financial products and financial instruments. There are two distinct parts of the industry; one is the sales transaction part, and the other is the advisory relationship part. To take it a step further, it is an issue of disclosure versus transparency. On the broker-dealer side, they are held to a disclosure standard or requirement. This is not necessarily transparent because the documents can be hard to read and understand. On the advisory side of the business, it is a transparency standard. There is nothing hidden; any revenue-sharing agreements need to be fully disclosed and transparent.

2. What is a fiduciary?

            The word “fiduciary” comes from the Latin “fiducia,” meaning “trust.” It refers to an individual or an entity that has the power and obligation to act for another, often called the beneficiary, under circumstances that require total trust, good faith and honesty. Characteristically, the fiduciary has greater knowledge and expertise about the matters being handled than does the beneficiary. A fiduciary is legally held to the highest standards of conduct and trust.

3. Is being a fiduciary optional for Foster Group? Is it a hat we can put on and take off?

No, Foster Group and our financial advisors, are fiduciaries. We are covered by three governing bodies to always act in the best interest of our clients:

  1. Securities and Exchange Commission – As a Registered Investment Adviser firm (RIA), we are held to the fiduciary standard, to always do what is best for the client.
  2. CFP Board – Many of our team members have their Certified Financial Planner (CFP®) designation. This governing body also holds us to the fiduciary standard. Complete transparency and open engagement where we clearly state what we are, and are not, going to do for the client is the standard.
  3. Centre for Fiduciary Excellence (CEFEX) – Acting as a fiduciary is not optional for CEFEX-certified organizations. Certification requires that the firm adhere to industry best-practices rather than simply meet minimum standards. Foster Group earned this certification in 2007 and is the only advisory firm in the state of Iowa, and one of approximately 90 worldwide, to hold this certification.

4. Why should our clients feel better about working with a fiduciary firm, particularly Foster Group?     

The only relationship we have is directly with our client. We don’t have contractual relationships with other financial firms requiring us to produce revenue or place a certain amount of business. There is no hidden agenda, there is no one else calling the shots. We only want to serve our clients and we are willing to do whatever it takes to serve them in the best capacity. In other types of relationships, sales or revenue or growth quotas and initiatives can taint the ability to provide unbiased advice.

I know how it feels; when I started in this industry, I was holding myself out as an independent financial planner, but in reality, I was an agent for an insurance agency. I was committed to my clients but, in reality, my clients were not paying me, I was earning commissions from the company. When you get to the end of the evaluation period and haven’t “made your numbers,” there is a large amount of pressure to lower your standards and only say what you need to say to get the sale. It is a very uncomfortable position to be in. We’ve chosen a different model that strives to eliminate conflicts of interest and operate from a place of objectivity – constantly pursuing the best outcomes for our clients.

5. Do you think the Department of Labor ruling is a good thing for consumers?

Yes, because it is going to require the conversation to be more transparent. I don’t think it is going to insure complete transparency, and I don’t think it is meant to be detrimental to any particular company or product. It is not necessarily meant to restrict the sale and marketing of financial products; it is meant improve transparency so the consumer has a more accurate sense of what they are buying.

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