Why being a fiduciary lowers your risk

William J. Heestand

By William J. Heestand, CLU, AIF

When I started out in the financial services profession 30 years ago, I was told by trainers it was a terrible idea to be a fiduciary because of the legal risks. What I’ve learned during the last 15 years is that the opposite is true. It’s my opinion that acknowledging yourself as a fiduciary lowers your risk.

Why would I say that? The regulations under ERISA (U.S. Employee Retirement Income Security Act of 1974) basically say if you give investment advice to a qualified plan or its participants, on a regular basis for a fee, then you’re a fiduciary. There aren’t any ifs, ands or buts about it. My employee benefits business was fee based, not commission based. So if I was asked in court if I’m fiduciary, how could I say no and still justify charging fees? What exactly am I doing for the fee? And if it were commissions, there is even more complexity to the non-fiduciary argument.

Taking care of clients

Why dance around the issue with a bunch of excuses? Why not say, “I’m a fiduciary and here are the things I do that are good stewardship.” That’s the keyword to the fiduciary process: stewardship. If you’re a steward, you’re taking care of things with attention to detail, and you’re looking after clients in a careful way. That is not only practical but it’s a best practice for risk management and client service.

When I started to embrace the idea of being a fiduciary, I realized that my risk went down, not up. Once you acknowledge being a fiduciary, you have to operate on a careful set of deliberate steps — because you’re a steward and the best interests of your client are most important.

Unbiased advice

Furthermore, being a fiduciary means being unbiased. If you’re incentivized by a variable commission, and what commission isn’t variable, there is unavoidable bias. When you charge a level fee — regardless of the product you offer — where’s the bias?

William J. Heestand, CLU, AIF, recently sold the Heestand Company in Portland, Oregon, which specialized in employee benefits, retirement plans and life insurance. He’s a past MDRT member and Top of the Table qualifier.

See more from Heestand in the video “Why your risk decreases when you give advice as a fiduciary” and “7 ideas to help build a marketable practice.”