We renewed our CEFEX accreditation. Does anybody care?

The Centre for Fiduciary Excellence, or CEFEX, of Pittsburgh, Pennsylvania, goes around the world certifying financial services organisations like ours certifying that we meet best practice standards in all aspects of our business. In particular, that we act as fiduciaries.

About 35 years ago I was introduced to the concept of fiduciary duty. At the time it was a term confined to the law. A fiduciary was a professional who owed the highest standard of care to their client.

It was expressed in another way that really struck home to me. A fiduciary was expected to put the interests of their client ahead of their own interests. If there were any conflicts of interest between the client and the fiduciary, the fiduciary would be expected to disclose those conflicts of interest and avoid them at all costs.

It related to professions where members of the public were especially vulnerable to the advice they were receiving, where they would have no way of knowing whether that advice was in their interests, or not. If they were told something that was incorrect, they would not know any better until it was too late.

The obvious fiduciary relationship was that between a lawyer and their client. That a lawyer must put the interests of their client ahead of their own is a long-standing principle of law. Also, the relationship between an accountant and their client, it too is a fiduciary relationship.

To me, thirty-five years ago, the fiduciary concept seemed ideally suited to the giving of financial advice. Here is an industry where many people are unknowledgeable about the complexities of financial markets. There are so many different options and so many different theories on offer. It is almost impossible to compare providers and to get to the bottom of all the costs involved with different options.

And to top it off, almost no one can work out in hindsight whether some investors got their returns from luck, or because they were skilled in selecting their investments.

Then to make matters worse, past returns are not a good indicator of future returns. You can say that till you are blue in the face and people will not believe you. They will go for past returns every time, and often get it wrong over the long term.

Because of the complexity in the giving of financial advice I believe being a fiduciary is a must. Some of our competitors are fiduciaries and they sign off on that, while a great many do not.

Most New Zealand investors are not sophisticated enough to even see conflicts of interest as a problem to them. They are so good natured that they sort of expect there to be the odd conflict of interest and so they do not worry about it.

We decided 18 years ago to join up with the CEFEX program:

  • That all our advisers would have to attend the two-day course on fiduciary principles early in their career and pass the exam requiring a 75% pass mark
  • Advisers would complete their extra continuing education every year
  • phwealth would undertake a CEFEX audit every second year
  • Cost of the program to phwealth: $5000 every year

One can be a fiduciary and not be certified by an external organisation like CEFEX, but it helps, doesn’t it, to have an independent organisation certify that you and your whole organisation are fiduciaries?

By having a CEFEX certified adviser some of the background checks that a prospective client has to do has been done for them by CEFEX. It shows that the organisation is trying to maintain best practice standards in all areas of its operation.

By upholding the fiduciary principle, it also says that the organisation should be trustworthy to deal with.

Look out for the CEFEX symbol independently certifying we are fiduciaries.  

Or watch a short animated video titled "Why work with a CEFEX adviser" below.