Written by: Conor Clark, CFA
An interest in economics and business has led me to pursue a career in investments, and six years in, I’m happy with the decisions that brought me here. One aspect of the finance industry that has always given me pause, however, is the prevalence of greed, fraud, and unethical behavior. After the Financial Crisis of 2008, which was largely caused by greedy and ethically questionable decision making inside large financial institutions, those of us working in finance have often been viewed by the general public with mistrust, and occasionally, with utter contempt.
Given the overall industry’s history of transgressions, such skepticism about financial professionals is fair, but there are plenty of good actors in finance as well.
As an employee of Agili, I’m proudly and honestly able to say I work for one of the good ones. Let me outline a few reasons why I can say that confidently.
Fee Only = Aligned Incentives
Perhaps the simplest and most powerful assurance that we at Agili are always acting in our clients’ best interest is the alignment of incentives. At Agili, as a fee-only firm, the only money we earn is a single fee that’s calculated as percentage of our clients’ investment portfolios. So, when our clients are successful, the firm is successful. Thus, it’s always in the firm’s best interest to recommend the best available investments to our clients, without any conflicts of interest impacting our decisions. Many broker-dealers will use financial incentives to encourage their representatives to sell certain investment products. At Agili, we use no such arrangements, selecting investments based only on their merits.
Fiduciary Standard
As a Registered Investment Adviser (RIA), Agili is bound by a fiduciary standard to its clients. In the words of the Securities Exchange Commission (SEC), this means we “have a fundamental obligation to act in the best interests of [our] clients and to provide investment advice in [our] clients’ best interests.” Because of this standard, we’re required to avoid any potential conflicts of interest (or at least clearly disclose legally acceptable conflicts when they’re unavoidable).
Broker-dealers, as opposed to RIAs, are bound only by an obligation of suitability. Brokers’ recommendations need not necessarily be in the best interest of clients so long as they are suitable for the clients in a very broad sense. This less stringent requirement opens the door for potentially questionable selling practices.
Last fall, our president Michael Joyce wrote on this topic for WealthManagement.com.
Association Memberships
Through its membership in a number of industry associations, Agili voluntarily subjects itself to much more ethical scrutiny than is required by law. Two such groups that I want to touch on in this post are NAPFA and the CFA Institute.
NAPFA is the National Association of Personal Financial Advisors. As a member of NAPFA, Agili must only accept compensation on a fee-only basis, in the manner discussed above, forgoing all commissions and referral fees. In order to gain entry into NAPFA, Agili was subjected to a rigorous review of our business to ensure there are no structural conflicts of interest.
The CFA Institute is a global association of investment professionals. Michael Joyce and I are both CFA charter holders, a professional designation that is widely regarded in the investment industry as an indicator of both competence and high ethical standards. The CFA Institute has a strict and comprehensive Code of Ethics and Standards of Professional Conduct, and Agili has chosen to adopt this code as its own. Once again, the level of scrutiny and disclosure required by the CFA Code and Standards is much stricter than anything that is required by law.
So, while I have a great deal of job satisfaction from an intellectual standpoint (having always been keenly interested in economics and business), from a moral standpoint it’s gratifying to know that I work for a firm that is as concerned about ethics as I am personally.