A high level of fiduciary care towards clients is not just a regulatory requirement, but sensible risk management for advisers as well, according to Equity Trustees head of corporate fiduciary and financial services Harvey Kalman (pictured).
“Most advisers have always tried to act in the best interests of clients. The difference now is that the ability to show that due care is taken will be essential protection for when things go wrong again, as they inevitably will,” he said.
There will be another investment crisis at some stage and the recent emergence of aggressive litigation firms has made it easier than ever before for investors to take part in class actions, he said.
This means advisers need to understand and embrace their fiducial duty of care, acting in accordance with clients’ risk profiles and ensuring clients understand what is being recommended to them, he said.
“It certainly adds another level of difficulty to the adviser role and creates an unenviable balancing act for them, between seeking returns and managing risk with a number of new considerations now needing to be taken into account,” he said.
An important factor for advisers to consider is the role of the responsible entity (RE) because if a small fund with an in-house RE collapses, investors could argue the extra risk of a small RE meant the product should not have been recommended, Kalman said.
This does not mean advisers should only look at large institutional funds because some of the best returns are offered by small boutiques that have a strong alignment of interest between managers and investors, but the strength and structure of the RE is an important consideration, he said.
