The AFN Blog

Yes, Financial Professional Standards Shouldn’t Be This Confusing

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For those of us living in the world of financial planning and investment management, we tend to throw around terms like “fiduciary” and “stewardship” assuming everyone knows their meaning and differentiation.

But for the average person just looking for retirement planning in Lancaster or investment management in Lititz, these terms can seem a little “insider,” like marketing buzzwords, or worse – alienating.

Historically, a fiduciary in the investment world puts their clients’ interests ahead of their own.

“Sounds great, but shouldn’t that be the norm?”

Yes! At Aries, we think a fiduciary standard is table stakes. Of course financial professionals should be putting their client’s interests first.

At Aries, we’ve long adhered to this timeless fiduciary ethic, but we strive to go above and beyond the traditional fiduciary standard by acting as true stewards of your finances, goals, and values.

We believe that a stewardship standard calls on us to provide more: responsible and prudent nurturing of the assets entrusted to our care; wise counsel in honoring your values as we make decisions together; and competence in understanding your situation and our capabilities when it comes to quality advice.

But there is a reason these terms all became lightning rods in the financial industry, and to better understand their relevance today, some history is in order.

What is a Fiduciary Standard and Why Does It Matter?

Once upon a time, you couldn’t buy and sell stocks from your phone for free (thanks Robinhood).

100 years ago, broker-dealers (BDs) were the sole gate-keepers to securities issued by public companies. Historically, the business of broker-dealers was in facilitating transactions. In 1960, you’d call your broker, or vice versa, to place a stock trade or buy a mutual fund, and the broker generally charged a commission to make that transaction happen. Brokers were also responsible for helping public companies get their new shares into the hands of people and investment firms. They were and remain highly regulated by the Securities and Exchange Commission (SEC), FINRA, and state regulators.

But based on legislation from decades ago, the law held broker-dealers to a standard known as “suitability.”

What is/was the Suitability Standard?

The suitability standard requires that broker-dealers’ securities recommendations must be “suitable” for their clients.

Of course, that definition is a little squirrelly, and it could be interpreted in a number of ways. Over the years, that led to many dubious transactions among securities professionals. Sadly, “financial advisors” (an unregulated term) are often associated with the Bernie Madoffs of the world. Conflicts of interest were common, as were high commissions on securities transactions, funky fees associated with mutual funds, and more dubious compensation arrangements.

A fiduciary standard is different.

What is a Fiduciary Standard?

As providers of investment advice – as opposed to facilitating transactions – Registered Investment Advisors (RIAs) like Aries Financial Navigators have always been held to a different standard under the letter of the law: the fiduciary standard. As you learned earlier, the traditional definition of a fiduciary relationship involves putting the clients’ interests ahead of their own.

The fiduciary standard was for many years a differentiating standard of conduct for investment professionals at RIAs and their clients.

Putting clients’ needs ahead of your own is certainly a step above just making sure securities are “suitable.”

Times have changed, however. For the better.

Regulation “Best Interest” (A Good Thing!)

In 2019, the SEC issued its final version of Regulation Best Interest (Reg BI, for short), a new rule requiring that broker-dealers and agents representing them act in their clients’ best interests when making investment recommendations. It essentially made the suitability standard moot and created a new standard for broker-dealers! Reg BI is still one step short of a traditional fiduciary interpretation – putting the client’s interests ahead of one’s own – but it is definitely an enhancement to the suitability standard that previously applied to brokers.

Additionally and intriguingly, Reg BI also somewhat reduced the disclosure requirements for RIAs. In fact, you can read about these shortcomings straight from the SEC’s Investor Advocate in this 2019 letter.

Reg BI was a great step forward in holding financial professionals accountable in replacing the suitability standard.

Still, we recognize that no amount of rule-making is likely to change that there will always be bad-faith actors.

Fiduciary Duty and Good Stewardship

For people like you looking for financial planning in Lancaster County, this can all seem a little here-nor-there.

A fiduciary responsibility has become the floor, in our view, among the standards to which financial professionals should hold themselves. It’s a bronze medal. The standards have been raised, to the public’s benefit, and at Aries, we work hard to uphold what we consider a higher standard.

With a stewardship mindset, we walk alongside those approaching and in retirement to provide sound advice and leadership in nurturing and preserving your assets, values, and goals. A stewardship standard is about knowing you, knowing your goals, and understanding your values in helping you navigate years of financial independence during retirement.

Our approach to financial planning in Lititz is reflected in our Core Values: Improvement, Integrity, Grit, and Adventure.

Whether we work together or not, we always love connecting with locals and those in need of sound financial advice. Call or email any time.



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