Fiduciary relationships, fiduciary duties, and sticky ethical and moral dilemmas

I've been enjoying Chaos Monkeys: Inside the Silicon Valley Money Machine by Antonio Garcia Martinez. 

It includes a memorable paragraph relating to fiduciary duties:

"Funny, that word, 'fiduciary'. From the Latin fiduciarius, meaning 'binding faith'. Legally, it refers to a condition of one party acting on behalf of another, with complete agency and assumed trust. In practice, whenever CEOs say it is their 'fiduciary duty' to do something, it means they are granting themselves moral licence to screw someone."

The terms "fiduciary" and "fiduciary duty" have been appearing fairly regularly in the financial advice space all over the world. This reflects a desire for the profession to be seen as a Profession with a capital P.

I'm not sure, however, whether the term is always well understood. You aren't a fiduciary because you call yourself a fiduciary. Whether you are a fiduciary or in a fiduciary-like relationship is a question of legal fact, that stems from the nature of your relationship with the client, the representations you've made to the client, and nature of the trust given to you by the client.

Acting as a fiduciary is not just about not working against a client's interest, but involves working in a client's interests, over and above the interests of anyone else, including yourself.

The paragraph above puts a funny slant on it, but there is an unsettling truth at the heart of it. One of the best ways of knowing if you're in a fiduciary relationship is if it creates situations that lead to truly difficult or unusual moral or ethical dilemmas.

Like the lawyer defending a criminal client who knows she is guilty, a true financial adviser acting in a fiduciary relationship will at times find themselves in sticky ethical situations. Sometimes these can be inconvenient for the adviser. More than that, it can sometimes be costly, and require the adviser to act against their own personal interests. That's the nature of a fiduciary role.

Sonnie Bailey

Sonnie is the founder and principal of Fairhaven Wealth.

Before founding Fairhaven Wealth, Sonnie worked in the legal and financial services industries for over a decade.

Sonnie first became involved with financial advice as a specialist financial services lawyer. For many years, he was an “adviser of advisers”, reviewing thousands of advice files prepared by hundreds of financial advisers, and providing feedback in relation to the quality and appropriateness of advice; industry best practice; risk management; and regulatory compliance. He has published work in industry publications and spoken at various financial advice conferences.

Sonnie has also worked with banks, investment management firms, insurers, and derivatives providers.

Sonnie has worked as a private client lawyer, focusing on succession, estate planning and trusts. He ran his own legal firm in Australia before relocating to New Zealand. He has also acted in independent trustee and company director positions.

Sonnie is passionate about helping people achieve their goals and manage the risks to which they are exposed.

He has written extensively on his blog, New Zealand Wealth and Risk, which can be found at www.wealthandrisk.nz.

Sonnie is married to his wonderful wife Chrissy, and has two young children, Ben and Anna.