Signs of a True Fiduciary
A true fiduciary will ask extensive questions, will visit each of the topics, will never have enough information, will include professionals in all areas—legal, tax, investment, and insurance—and will provide concrete, concise research and feedback in each area. Regardless of your wealth and income, you can find a true fiduciary.
Upon preparing or creating documents, whether for an estate plan including Medicaid planning, business succession, income, capital gains taxes and or estate taxes, or a financial plan (whether sophisticated or not), a true fiduciary will ask to see all agreements, licenses, proprietary material, financial and insurance documents, tax returns, government certificates, and anything else that may be pertinent. This is important since it allows the fiduciary to see all the pieces of information and how they interact or conflict with each other. True fiduciaries have exposure to all areas of expertise, enabling them to have a sense of when other professionals are needed. You, as the client, should not exclude information that was not requested. Present everything and anything, regardless of how irrelevant you may think it is.
A true fiduciary will examine each piece of information and include vetted professionals to examine documents he or she is not completely familiar with or discover areas that may be in question of need or necessity. Fiduciaries have the responsibility to present what is, in their professional opinion, needed for the client and will benefit the client or determine what is required and necessary.
Due Diligence, Need or Necessity?
Recently, I was asked to review an insurance file for a fiduciary’s client. The fiduciary, while preforming due diligence, recognized a life insurance policy, reviewed it, and then felt the need to bring in an insurance professional (me) for further review and analysis. In this case, the client had a twenty-year-old permanent cash-value life insurance policy paying a monthly premium. After my examination (due diligence) and recommendation, the client was able to replace the policy with the same type of policy with twice the face value and half the premium. This was obviously in the best interest of the client.
On another occasion, a fiduciary while establishing a trust was examining a deed. While performing due diligence, he discovered that a mortgage was paid off and the discharge document was not recorded in the registry of deeds. It is necessary for this executed document to be filed so there’s no delay in the future sale of the property.
If the fiduciaries had turned a blind eye to these issues, they would not have been fulfilling their true fiduciary duty and the client would not have received the full benefit of having a fiduciary.
How do I find true fiduciary professionals?
Typically, true fiduciaries work with other true fiduciaries. Once you identify one, the others will fall in place. For example, if you have a CPA that is a true fiduciary and ask for a reference for an estate planning attorney, the CPA, knowing your financial status and needs, would provide a list of reputable attorneys, not one in particular. You would then have the opportunity to interview and consult with each attorney before deciding which one to introduce to your team. To maintain ethical standards, attorneys and CPAs are required to recommend several professionals within the category of expertise, whether is it is an attorney, CPA, or financial or insurance advisor.
I define a partial fiduciary as one who does not fully function in the manner of a true fiduciary. Components of what should be included in a comprehensive plan are not explored. The partial fiduciary may fail to investigate the unknown or fail to introduce another professional with knowledge in the unknown area. One who fails to introduce another professional is oftentimes afraid of losing control over the file and ultimately a percentage of his or her fee. The phrase “you don’t know what you don’t know” holds true when discussing a partial fiduciary.
It is understood that a partial fiduciary can legally fulfill his or her duties since there is leeway in a state’s definition of a fiduciary. This imprecision leads to subjective interpretation of the law. Although legal, are the practices of a partial fiduciary ethical and right? In this sense, a partial fiduciary is open for tremendously more liability than is a true fiduciary. Areas of concern include estate, Medicaid planning, long-term care, business succession, and financial planning.
I define a blended fiduciary as a type of partial fiduciary that shares a commission. It is not unusual where a partial fiduciary that is blending services will ask the client to sign a disclosure regarding the blending of fiduciary duties, therefore creating transparency and avoiding what could be a conflict of interest. This allows blended fiduciaries to provide their service as an attorney, CPA, and financial and insurance advisor and then collect fees and applicable commissions for each service.
Commission sharing is legal, but here, also, we must ask if it is ethical. And is it acting solely in the interest of the client—the definition of fiduciary provided by the McCombs School of Business? This practice limits exposure to other professional advice and creates a monopoly with nowhere for the client to turn for comparative consultation.
How do I identify a partial fiduciary?
True fiduciaries serve all levels of wealth while partial fiduciaries may not. Having a lower income does not mean having to make do with a partial fiduciary.
Partial fiduciaries may not be interested in gathering comprehensive information or do not look at information, other than what they need for their function. They do not touch all areas—legal, tax, investment, and insurance. They may provide waivers and disclosures in order to cross sell or collect commissions, rarely bring in other experts, and may not be fully transparent.
Now that you have the knowledge consider using true fiduciaries to address your needs.
Please check the bio section of this post for fiduciary vetting resources including questionnaires that may help you through the process.