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The New Wealth Management: The Financial Advisor's Guide to Managing and Investing Client Assets by Harold Evensky, Stephen M. Horan, Thomas R. Robinson, Roger Ibbotson

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CHAPTER 2

FIDUCIARY AND PROFESSIONAL STANDARDS

The most treasured asset in investment management is a steady hand at the tiller.

—Robert Arnott

With the career opportunities that a wealth manager can expect to receive come great responsibilities. Managing wealth for others has evolved over time into a profession that carries with it legal, ethical, and other standards, often, but certainly not exclusively, within the context of trusts. In this chapter we first review the historical context of what it means to be a fiduciary and what duties apply. Next we present professional standards that are applicable to wealth managers. We then provide guidance for the management of client accounts in accordance with these standards.

FIDUCIARY DUTY

The highest standard that applies when a wealth manager is making investment decisions for others is that of a fiduciary. A fiduciary duty is a legal concept that can be imposed when someone (a fiduciary) is making decisions for another’s benefit (a principal or beneficiary). The level of personal liability a fiduciary assumes is significant. Investing as a fiduciary was once a rather simple process of defaulting to a conservative portfolio of high-quality bonds with an occasional sprinkling of blue-chip stocks. Today this simple investment solution no longer suffices. There has been a shift in the standards applied to investing as a fiduciary. For anyone serving as an investment fiduciary or advising clients who are fiduciaries, knowledge of these ...

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