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Fiduciary Lessons from Ken Fisher Fallout

Fiduciary Lessons from Ken Fisher Fallout
October 29
00:03 2019

This is not a story about what Ken Fisher said, but about the fiduciary implications for those who have reacted to his comments.

This story starts with as op-ed authored by Abigail Shrier that appeared in the October 24, 2019 issue of The Wall Street Journal. While her editorial spoke to generational issues (it was titled “Ken Fisher, Joe Biden and the Merciless Young”), it nonetheless brought to the surface a rather awkward fiduciary conundrum the Fisher fiasco may have inadvertently exposed.

Shrier, perhaps without knowing it, reveals the undisclosed conflict-of-interest raised when several “who attended the conference likewise breached their nondisclosure agreements they signed to announce how shocked and appalled they were by Mr. Fisher’s comments.” Shrier points out that, in each of these cases, the breach was promulgated by a competitor of Fisher.

Does this inherent conflict-of-interest matter in general and with a fiduciary context in particular? It depends on who you ask.

No one questions whether a conflict-of-interest exists. There is some question as to whether which side the moral imperative falls. “The conflict of interest arises because the audience is a competitor to the speaker,” says Dr. Guy Baker, founder of Wealth Teams Alliance in Irvine, California. “However, when a speaker violates social norms and posits offensive statements, there is no reason to think there will no repercussions. A conflict arises when one party withholds information from the second party for the purpose of benefiting at the second party’s expense. In this case, while the first party (the whistleblower) might benefit from the disclosure, the second party (the speaker) had the ability to control the situation by not providing party one with embarrassing ammunition.”

Some feel this lack of disclosure ultimately falls on the shoulders of the reporter. “We often think of lying as a proclamation of misinformation, but more frequently lying takes place in the form of withholding information or not clarifying information so as to allow the audience to read from it what they wish,” says Robert J Forrest, Financial Advisor at Jacobitz Wealth Management Group in Omaha, Nebraska. “Whether or not the failure to disclose the conflict-of-interest was intentional or not, it is the responsibility of the journalist to make all relevant information known.”

Of course, even when the journalist does her job (in the case of Shrier), this doesn’t others won’t find fault in fulfilling that duty. “The fiduciary standard applies to the entire relationship, not just the transaction. it encompasses a person’s behavior, ethics and conduct including spoken word,” says Georgia Bruggeman, Founder at Meridian Financial Advisors, LLC in Boston, Massachusetts. “Fiduciary responsibility has nothing to do with performance. It means putting the clients’ interests first and disclosing all conflicts of interest. A fiduciary is completely within their right to fire Fisher if they feel his ethics and conduct are inappropriate or even harmful to the client. This is a pathetic attempt to smear whoever outed Fisher.”

Baker agrees with this reasoning. He says “the character of the whistleblower should not be denigrated unless their revelation is unsubstantiated and unethical.”

But disclosing conflicts-of-interest isn’t the only fiduciary issue. The most blatant issue pertains to violating the promise of nondisclosure. Certainly, one has a fiduciary duty to report any fiduciary violations. This would obviously supersede any nondisclosure promise. “In regard to Ken Fisher’s comments, they may have been crass, but they were not necessarily violating any fiduciary obligations,” says Fred Hubler, Founder of Retainer-based Academy located in Phoenixville, Pennsylvania. “When fiduciary obligations are violated, there is a clear concern and red flag at hand.”

If Fisher’s comments had no fiduciary bearing, does the nondisclosure breach in revealing them raise concerns? “A red flag arises when anything confidential is violated,” says Hubler. “The action indicates that the privacy regulation is not valued as much as it should be.”

Indeed, the use of “moral imperative” to justify breaching the nondisclosure agreement is difficult to reconcile with the greater “fiduciary imperative. “From a moral perspective, many consider the matter of breaking the confidentiality agreement as the ‘right’ thing to do – something improper was said and action needs to be taken,” says Forrest. “From a fiduciary standpoint, meaning a legal standpoint, their speaking out was, well, wrong. We should realize that, regardless of whether or not we agree with those who broke their confidentiality agreement, the individuals who spoke out made a definite decision to place their own moral compass above the legal standard to which they had formerly agreed to. We do well to consider in what other areas people apparently holding themselves to a fiduciary standard decide to uplift their own moral reasoning above the legal precedent which was previously set.”

Of course, on the face of it, the conference setting wasn’t really a pure fiduciary setting. “I see no fiduciary warning flags in this instance,” says Baker. “The whistleblower did not violate fiduciary guidance. This is not client specific, so the best interest of the client is not at risk. A speaker has no right to assume the audience will protect statements that reflect bad judgment or are offensive.”

On the other hand, the professional investment advisers in attendance, and, specifically, those who chose to violate their nondisclosure agreement, may present themselves as fiduciaries to their clients. “Holding oneself out to the general public as a fiduciary makes a broad statement that said individual is setting aside personal preference for the sake of serving the client according to the legal best interest of the client or, as I would content, according to the preference of the client,” says Forrest. “This means the fiduciary adviser has to put their personal preference out of mind for the sake of the wishes of the client per their wishes – if the adviser cannot do that then they should not participate in that fiduciary-bound relationship. In legal and righteous matters there is no place for thoughts like, ‘I know I signed this legal agreement to act a certain way, but I just can’t let this go so I’m going to break my bond just this one time.’  As a client I ask, Will this adviser break his/her contract with me because they disagree with my wishes? Which is stronger for this adviser, their word and bond or their emotional convictions?”

“While Ken Fisher’s comments were unprofessional, it doesn’t necessarily mean they were a violation,” says Hubler. “I don’t believe it was necessary to fire Fisher’s firm due to him violating regulations, but rather the concern was that he was speaking inappropriately and offended many people. Although prospects may decide he’s not the type of person they want to work with based on his comments, that is more of a choice, and not a regulatory or fiduciary requirement. The bottom line is, while Ken Fisher might not be the best person, it doesn’t mean he can’t manage money. However, you probably won’t want someone who isn’t a good person managing money for you.”

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Hubler’s comment may work for private clients of Fisher’s firms. They have no external or legal fiduciary duty. It’s their own money. They’re free to choose who they do business with.

The calculus changes, however, when you’re hiring Fisher’s firm and you are acting in the capacity of a fiduciary on behalf of others. The fact that billions of dollars in institutional assets have left Fisher’s firm since his confidential remarks were leaked out causes one to wonder if those institutions may have placed themselves in fiduciary jeopardy.

For instance, if Fisher’s firm was fulfilling its obligation to the beneficiaries of these institutional assets, what fiduciary risks are posed to these institutions in firing Fisher’s firm? “The decision to terminate services was not based on performance as much as it was on moral indignation,” says Baker. “There is no quid pro quo here. Had Fisher not made the remarks he made; the institutional firms would have no moral grounds for terminating his services. The bigger question is whether Fisher’s firm was providing services that met the benchmarks and standards of the clients. The institutional managers should have provided each client with the opportunity to ignore the statements. Fisher’s moral integrity was not a fiduciary breach. However, continuing to utilize Fisher if the clients would prefer not to be associated with him would be. This is an issue in which the client needed to have a vote.”

But if the client doesn’t get a vote – if the institution has sole fiduciary discretion – firing Fisher’s firm becomes problematic if it has been offering effective value. “As a money manager, Ken Fisher was bound to generating the greatest return relative to least amount of risk/volatility at the lowest possible price inside a framework that matches the investment policy statement of the client,” says Forrest. “Deviation from performance, risk/volatility, price or investment allocation constraints are all reason to let a money manager go on the basis of maintaining their fiduciary standard. Speaking lewdly in a private conversation is not.”

Ironically, the fiduciary exposure may be worse if Fisher’s firm has not been providing effective value and the firing might have been justified far earlier than it has occurred. “It’s interesting to me that the fiduciary standard is being held as the grounds for institutional clients’ firing Ken Fisher,” says Forrest. “Within the framework of whether or not you like your money manager, making lewd jokes is plenty of grounds for firing him – you can fire your adviser because you don’t like their hair cut if you’re so inclined. But within the framework of a fiduciary standard – and I hope people remember the framework here – whether or not the money manager is a sexist has nothing to do with his investment performance. If Ken Fisher’s firm was regularly underperforming, overcharging, etc. prior to the comments then these institutional clients had the fiduciary obligation to replace him long ago.”

Therein lies the conundrum. In the current environment, it may be far easier to overlook the failure to meet benchmarks with adequate consistency than it is to ignore the du jour ad hoc definition of woke. This presents a constant moving target for the fiduciary. Once you leave the safe haven of objectivity and enter the misty haze of subjectivity, you may never be able to return.

“It is vitally important, especially in today’s landscape, that we learn to distinguish between moral opinion and legal obligation,” says Forrest. “Because so much of our lives are being broadcast across the internet today, we’re being forced to come to grips with the fact that people are not what we think they are. More frequently we’re being forced to decide which is more important for us in our business relationships: Performance or Personality. There are plenty out there who are great people and do wonderful work, but many don’t check both boxes.”

Christopher Carosa is a keynote speaker, journalist, and the author of  401(k) Fiduciary SolutionsHey! What’s My Number? How to Improve the Odds You Will Retire in Comfort, From Cradle to Retirement: The Child IRA, and several other books on innovative retirement solutions, practical business tips, and the history of the wonderful Western New York region. Follow him on TwitterFacebook, and LinkedIn.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA

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