No greater source than the Bible itself, Luke 16:2, calls for managers to give an account of their stewardship. This command recognizes that we live and work in communities, each person reliant on his or her brethren in some important way to perform those services for which others are more aptly suited.

Clearly this reliance creates a special position of trust between principal and agent. In the context of investments the principal, or the person who is being served by others, is the client, and those person(s) who are doing the service are the agents. So, at least in our opinion, how does an investment manager best account for his stewardship to his client? As a fiduciary.

A fiduciary relationship with complete transparency and trust

We believe that the relationship of trust between an adviser and his client is best served under the exacting standards of a fiduciary duty.  A fiduciary duty is a relationship requiring one person (a fiduciary) to act on behalf of and solely for the benefit of another.  A fiduciary duty is the highest duty recognized in the law.  Accordingly, a fiduciary must operate with complete transparency and full disclosure to his client in regard to all fees, expenses, risks, and expected returns.  Unlike a fiduciary, a stockbroker (often called financial planner or retirement planner) has, with the exception of the suitability rule, duties to his respective brokerage or insurance companies and not his clients. This type of relationship is better known as a commercial relationship or caveat emptor (buyer beware).

A fee-only fiduciary adviser has no conflicts of interest

A fee-only (not merely fee-based or commission offset) fiduciary adviser must account for their stewardship under the strictest standards imposed by law. By accepting a fiduciary duty and charging a fee (instead of receiving a commission or load from a product) on the assets under management a fiduciary has, by design, absolutely no conflicts of interest with his clients. This can be contrasted to the typical commercial relationship with stockbrokers and insurance producers, where products are sold with varying commission schedules.

These varying commission schedules (e.g., a mutual fund paying 3.5 percent commission, another mutual fund paying 5.75 percent commission, an annuity paying 12 percent commission and so on) pit products against each other based on the commissions that they pay the adviser and not the quality of the product, which should be the sole focus of concern for the adviser. It should also be noted that ultimately the investor, and not the brokerage or insurance company, is paying the adviser’s commission. This basic concept gets confused especially with bonus enhancements that are offered to investors to entice the purchase of an annuity.

A fee-only adviser’s interests are fully aligned with his client’s interest in keeping costs low and fully optimizing the portfolio in relation to its risk and expected return. Why would this alignment between adviser and client occur? By placing clients in the least costly and most effective investments the portfolio will improve its performance over time where any inefficiency or high cost of investing would create a drag on performance; such drag on performance would result in a reduction of the portfolio and thus a reduction in management fees. It is safe to say that both adviser and client wish to do well. What is important is that they do well together. In our opinion, this alignment of interest between a fee-only fiduciary adviser and his client represents the hallmark in stewardship.

An adviser with substantial education, training and experience

The complexity and velocity of change in finance, securities and investments, accounting regulations and conventions including new international standards, tax laws and estate planning requires an adviser to have substantial education, training and experience. In our opinion, a good steward owes this high standard of excellence to his client. The client has, after all, entrusted some or all of his life savings to his adviser. How better to serve his investment client than to obtain a substantial, rigorous university-based education and long-term commitment to the profession?

We recommend advisers holding advanced degrees and designations such as, JD, PhD, DBA, MS, MBA, CPA, PFS, and/or CFA, and preferably some combination of these degrees and designations. We are not alone in such sentiment.  In his well-regarded and top-selling book The Millionaire Mind, Dr. Thomas J. Stanley, professor and prolific author on the affluent including the national best seller The Millionaire Next Door, makes clear that wealthy investors almost always look to investment advisers who are lawyers (JD) and/or CPAs and seldom engage financial planners and brokers.

		Stephen L. Hicks, JD, MS, CPA and Roger L. Millbrook, JD, CPA/PFS, are fee-only fiduciary investment advisers and principals of Siena Capital Management, LLC. Part of a larger Siena team, both professionals are lawyers and accountants and hold other degrees or designations in the area of financial services. Siena was recently listed by CPA Wealth Provider Magazine as one of the Top Investment Advisory Firms in the United States. Siena is the only investment firm headquartered in mid-Michigan to make the exclusive list. Siena advisers can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .