What is the “fiduciary standard of care?”
A Fiduciary standard of care entitles that a financial advisor must at all times while providing his service to the client must act in client’s best interest.
Financial service industry in the past has experienced misspelling products more than any other industry. Mis-selling is a significant problem in financial services industry and for financial industry regulators. Service provider who are compensated by the sale of the product based on commissions may have significant incentives to sell investments or investment products based on how much they can earn rather than what is suitable or what is needed by a customer. Mis-selling may occur with insurance products, annuities, investments, mortgages and a variety of other financial products. A financial loss is not necessarily required to meet the definition of mis-selling; the sale of an unsuitable product is enough.
A lot of times the clients are not aware of the product being offered or recommended ,what hidden costs they’ll be charged, the benefits they’ll receive and ultimately, whether the product is going to make a difference to them in the long-run.
To be in best interest of the clients or customers regulators around the world started emphasizing on the issue & brought in several stringent law that protects the interest of the customer.
Are There Separate Certifications For Fiduciaries?
There are no specially rolled out certification that marks an advisor as a fiduciary. However there are fiduciary standards that impose and advisor to have the highest standards of conducts & responsibilities towards the client’s interest.
However, the fiduciary advisor needs an advisor to be suitably qualified. It is assumed that only then, the advisor would be able to analyse & come up with situational solution aligned with client’s needs. Hence, Fiduciaries require to be qualified to serve their responsibility towards their clients.
What about Fiduciaries in India?
The primary regulation of such sought was SEBI Investment Adviser Regulations 2013 with an aim to create a new category of fee-only advisors, who would also be undertaking fiduciary responsibilities. These are the only fiduciaries in India under Financial Advisory space currently.
One needs to be a graduate and mandatorily having five years of experience or a post-graduation in a relative field. Also, under this regulation, the advisors need to have a globally recognized standardized certification such as CFP (Certified Financial Planner).
What are the prevailing Conditions for A True Fiduciary?
The utmost crucial requirement for a fiduciary is that s/he should not receive remuneration or have any commercial arrangement with any product originators, thus ensuring their objectivity is not influenced by product providers. The advisor should make sure that client interest comes first & there is no conflict of interest. A Fiduciary, will need to be remunerated only by the client and no one else – across all products recommended to client. If the advisor has any other source of income from the services that he provided to the clients then such income should be completely disclosed. Advisors must act in best interest of their client. This could happen only when their advisor is Fiduciary.
At TBNG, we comply with the fiduciary standard of care. We’re SEBI registered fiduciaries and hold a legal obligation to our different stakeholders.