Why a fiduciary?
Fiduciary duty is one of the three pillars of long-term investor success. A fiduciary is bound by law to act in an ethical manner and in the best interests of another. Portfolio Managers in a fiduciary relationship with their clients, have a duty to act in the best interests of clients.
This fiduciary duty exists in only a minority of financial advisory relationships within the investment management industry in Canada. The advisors representing mutual fund dealers or bank-sponsored funds have no such fiduciary obligation. Although many of these firms do have investment management divisions under a fiduciary umbrella, the corporate directors of publicly-traded dealers and banks have a primary duty to their shareholders. Conflicts of interest may arise as shareholder interests often are at odds with client interests. There can be pressure from shareholders on management to maintain fee revenue growth in their quest for ever-growing earnings. In fact, Canada’s retail investment community charges higher fees than any other country, globally. In contrast, fees in the US are among the lowest in the world.
There can also be pressure for the investment firm itself to grow; to take on ever increasing levels of assets. The growth can quickly become unhealthy and at odds with the interests of existing clients. As these firms grow, they also tend to diversify their business by adding new funds, as existing funds get larger and larger and can no longer be managed as nimbly as they once were. This kind of growth is rarely in the best interests of clients but it does make management look good to shareholders.