For financial advisors, the term “fiduciary” has special meaning. It carries the expectation that an advisor who operates as a fiduciary puts their clients’ interests first. It’s a commitment that I’ve always believed in and I am proud that Mosaic continues to lead the way by acting as a fiduciary for our clients.
You might expect that putting clients’ interests first would be a normal service standard. But it hasn't been in the past and it still is not today. In fact, there has been a divide in the standards of service for decades.
Since 1975, the brokerage world has been subject to the Financial Industry Regulatory Authority (FINRA) Rule 2111—the “suitability standard.” This standard only requires that recommendations (for investments or other offerings) be “suitable” for a client when a given product is recommended or sold. The suitability standard considers an investor’s demographic and investment profile. There is no requirement that the investment be recommended in consideration of the client's best interest.
Thirty years ago, when I began what is today known as Mosaic Financial Partners, I was part of a “broker-dealer” that allowed me to sell commissionable products (insurance, investments, and the like). I was subject to the above-referenced suitability standard. I found the resulting conflicts of interest problematic and I moved our business to its current fee-only compensation model.
We became an independent, Registered Investment Advisor (RIA), as approved by the SEC, on March 16, 1989.
Those who operate as Registered Investment Advisors are held to a fiduciary standard—the highest of client care.
- This eliminates any circumstance where an advisor can place their own personal interest above that of the clients that they advise.
- RIAs must also disclose any potential conflicts of interest.
- RIAs are also prohibited from engaging in investment banking and underwriting.
As a fee-only RIA, Mosaic charges its fees based on the assets we manage on our clients’ behalf. We also charge a project fee for the initial financial planning we complete in the first year of our relationship.
We consider it part of our fiduciary duty to not only manage your investments on an ongoing basis but also to monitor and update your financial plan over the life of our relationship.
Mosaic accepts no compensation from any third party. Regardless of what investments we may employ or products we may recommend, our compensation remains the same. Our recommendations are solely made based on what we believe is in your best interest. This largely eliminates the conflicts of interest that I found so disturbing decades ago when I first founded the firm.
Recently there has been a lot of publicity about the new Department of Labor (DOL) “fiduciary duty” rule. This new rule requires disclosures relating to cost and areas of potential conflict of interest when an advisor is newly taking over retirement plan assets (retirement plans are subject to the DOL’s oversight). The rule does not address taxable investments, insurance, or other financial products. Even so, these changes have sparked a significant political struggle, with the brokerage world resisting at every step.
We believe it is important to be transparent
Properly dealing with conflicts of interest is about transparency—recognizing when conflicts of interest may exist and being open with clients about when those potential conflicts exist. (“I could benefit in the following ways if you follow my recommendation” or, “I am not impacted regardless of your choice”).
We believe it is important to be transparent, to proactively disclose conflicts when they do exist and to seek to avoid circumstances that create potential conflicts whenever possible.
The new DOL fiduciary rule has nudged Mosaic to formalize our process. While the rule may never actually be formally adopted under the current administration, we believe the intent of the rule—disclosure—is a positive for clients. Although the new DOL rule continues to be disputed, Mosaic recently announced its immediate and proactive compliance with the most stringent interpretations of the DOL rule’s requirements. Simply stated, we believe that financial advisors should act at all times in their clients’ best interests.
As much as humanly possible, we want our advisors to bring not only expertise but also objectivity to their recommendations. If we are recommending that we take over the management of your 401(k) account, we think it is important for you to consider the costs as well as the benefits. If it will cost you more to have Mosaic manage that account as part of your total portfolio, we want you to understand that. Without you being completely clear about your current and projected costs, you won’t have a reasonable way to make an informed decision.
We want to help you succeed
As such, it is our responsibility to keep you as informed as possible about the implications of your choices.
Mosaic is proud to be a leader in the financial industry and to let the world know that we are fiduciaries. Our job is to help you make intelligent choices. This means we have an obligation to be transparent about relevant information and to make you aware of your best possible options.
Thank you for evolving with us over the last three decades. It’s a pleasure to serve you.