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3 ‘Must Do’ Practices To Become A Better Professional Fiduciary
by Christopher Carosa, October 16, 2024
What advice would you give a young professional fiduciary so that they can become a better 401k professional fiduciary? As the next generation eases into their roles as ERISA fiduciaries, that’s the question many are seeking advice on.
What better people to provide this advice than seasoned veterans who have spent their careers living the life of an ERISA fiduciary? We’ve scanned the nation for just such people and here’s what they had to say.
Position Yourself To Get The Right Experience
It’s important to realize there are differences between the role of a personal trust fiduciary and a retirement plan fiduciary. The former is guided by centuries of case law within the classic tradition of trusts and estates. The latter spawned more recently and is governed by federal regulatory bodies. Still, to really understand what it means to be a fiduciary, it’s best to focus first on the basics.
“Go work in a bank trust department for a few years. It will instill the proper mindset in your soul,” says Brian Seelinger, Knox McLaughlin Gornall & Sennett, P.C. at Erie, Pennsylvania. “You will also quickly discover if you think like a fiduciary or not.”
That being said, you do need to go beyond the basics. The world of ERISA presents a much different aspect than that of personal trusts. The nuance isn’t something to overlook.
“To become a better professional fiduciary,” says Marcia Wagner of The Wagner Law Group in Boston, “a young professional fiduciary, particularly one who is advising ERISA plan sponsors and plan participants, of the elevated standards to which he or she is held-the ‘highest standards’ under law.”
Know Your Primary Duty
It’s tempting to turn your attention to your company, some academic theory, or even—hush!—“best practices.” The truth is, as a fiduciary, you only have one job.
“To be a true 401k fiduciary advisor you must be focused on helping ALL the participants in the plan,” says Terry Morgan, President of Ok401k in Oklahoma City, Oklahoma. “Even the great unwashed who are struggling to put in $15 bucks a paycheck into their 401k.”
Here’s the thing you learn as a traditional bank trust officer: in retirement plans, the beneficiary isn’t the person you’re seeing today, it’s that same person several decades from now when they retire. Even experienced fiduciaries sometimes forget this.
“Always, put your clients first and never stop learning,” says Todd Feder, vice president and senior retirement plan consultant at Girard, a Univest Wealth Division in Souderton, Pennsylvania. “There are new regulations that come out all of the time and research is released frequently that can help inform recommendations. Be a steward for your profession and your clients.”
It’s as simple as it gets.
“Always put the client’s interests first, as this is the foundation of your fiduciary duty,” says Richard Bavetz, investment advisor at Carington Financial in Westlake Village, California. “Be transparent about fees, potential risks, and conflicts of interest. Trust is the currency of a fiduciary relationship, and maintaining integrity will help you build long-term, successful client relationships.”
Bavetz then outlines several tactics to employ along these lines:
“Keep clients well-informed about their investments and financial plans through regular updates and straightforward explanations. Avoid jargon and always confirm that clients understand the rationale behind your recommendations, which empowers them over time to make more informed decisions.”
“Clear and regular communication is another cornerstone of fiduciary excellence. Proactively review client portfolios, tax situations, and changing life circumstances to adjust strategies as needed. This proactive approach demonstrates diligence and helps protect clients from risks they may not foresee.”
“Empathy is key. Every client’s situation is unique, and truly understanding their concerns and goals allows you to create personalized strategies that resonate with their vision of financial success. Take the time to listen carefully to their concerns and goals, and craft personalized strategies that align with their vision of financial success.”
Study What Works For Others
Finally, there’s the idea that you should always be learning. About everything. All the time. Because the world is constantly changing.
“The key to becoming a better fiduciary is a combination of continuous learning, transparency, and a caring attitude,” says Bavetz. “The financial landscape is constantly evolving, with changes in regulations, tax laws, and market conditions. Stay informed by pursuing continuing education, certifications, and industry updates. This deepens your expertise and equips you to provide the best advice to clients.”
This means going beyond what you’re selling, because, if you’re a fiduciary, you shouldn’t be selling, you should be protecting.
“My advice is for young professionals to always look through the lens of industry best practices and fiduciary duty to a plan when learning about the products and services of their employers,” says Jeff Coons, chief risk officer at High Probability Advisors in Pittsford, New York. “Even well-intentioned providers may get caught up in old ways of building and delivering their products and services that may not keep up with industry best practices. Young professionals can become better fiduciaries if they do not simply assume that what their employers’ products and services already meet fiduciary standards and conform to best practices.”
For people new to the fiduciary industry, it can seem daunting.
“Don’t become jaded by the financial industry,” says Bavetz. “Most individual advisors are well-meaning but have been caught up in a top-down culture that was created by the large mutual fund wirehouses and brokerage firms, geared towards making money oftentimes at the expense of the client. Once someone is in that culture, it becomes harder and harder to see outside of it. Have compassion for the well-meaning advisor but know that you have decided to obligate yourself to place the client’s interests ahead of your own at all times and that road is the best road to be on.”
How can these three ideas improve your work as a fiduciary?
Christopher Carosa is an award-winning online news producer and journalist. A dynamic speaker, he’s the author of 401(k) Fiduciary Solutions, Hey! What’s My Number? How to Improve the Odds You Will Retire in Comfort, From Cradle to Retirement: The Child IRA, and several other books on innovative retirement solutions.