Fiduciary duty and personal politics (either side)

Miscellaneous and Personal Stuff I Must Share
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Another thread about personal finance and the current government triggered a question for me. I was tempted to put this in GQ, but I wasn’t certain it was best.

I think I have a rough idea of what fiduciary duty is. A financial service that my workplace offers as a benefit emphasizes that their advisors have it, and will thus work for our benefit rather than a commission. But isn’t a judgment of “best interests,” especially financial, greatly dependent on personal politics to a great extent? If not, why not?

For example, suppose either the advisor or the investor fully and sincerely believes that the American or global economy will crash completely and not recover because they loathe and fear the acts of the current government. They sincerely believe that the correct thing to do is to make financial decisions accordingly that are incompatible with belief that society will remain or return to normal and that clearly are against the investor’s best interests if they’re wrong (e.g. cashing out all investments and retirement accounts to buy guns and canned food, using the kids’ college funds to pay for immigration lawyers, etc).

Suppose it’s the advisor who thinks this, and tells the investor so. I honestly can’t imagine this happening, but why not, if the advisor really believes it, maybe even planning to do it themselves (there has to be at least one out there), so in their mind, wouldn’t saying otherwise be a violation of their duty, especially if specifically asked?

The investor tells the advisor so, to get affirmation they’re doing the right thing, citing their beliefs. Does the advisor try to talk them out of it? To what extent? Does that too depend on the advisor’s beliefs?

What about the opposite? The person is a conservative who thinks golden financial opportunity is afoot, and wants to make heavy investments. The advisor looks at tariffs and doesn’t think it’ll work out, and the investor takes that as a political breach of duty? Is anyone necessarily right here? (Again, same if it’s the advisor.)

Actually, the above does show me a glimmer of a possible answer, when I think about NFTs and business/financial decisions mostly associated with the right. But still, I ask myself, if I go to a professional for advice on what I should do with my money over the next few years or so, am I at the mercy of the personal politics of whoever I choose to ask? I can’t imagine there’s an “objective” answer to personal finance questions, unlike the law, but at the same time, I’d have no idea how to judge the answers I get, whether they’re influenced by the other party being a Pollyanna conservative or an overly paranoid liberal.

This question is sincere on my part, and happens to fit into my already expressed interest on acting practically on political beliefs, so answers and discussion are greatly appreciated!

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My limited experience with my own financial advisers leads me to expect them to be able to show their work, i.e. justify their choices with generally accepted tools and theories. I would not expect them to suddenly shift investments under their control to a disaster scenario, especially not without notifying their customers first and giving them a chance to opt out.

My financial advisers had me go through several questionnaires about my investing goals, and they stick to those unless I tell them otherwise.

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I could be wrong, but I don’t think an advisor has any duty to warn against bad investments if that’s what the client wants. If I go to my advisor and say “buy that stupid Trump stock,” he can do so without fear of getting sued. On the other hand, if he advises that I buy that stupid Trump stock, he has to be more careful. But being a fiduciary doesn’t mean they have to be right, or even rational. It means they have to put your interests above their own. It’s basically designed to avoid conflict of interests. Buying guns or gun heavy investments doesn’t breach any fiduciary duty, as long as the advisor isn’t recommending those investments to enrich himself (other than disclosed commissions, fees, etc)

An advisor who recommends selling Disney stock because they think bird flu is going to shut down Disney world for 18 months isn’t breaching any duty.

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That’s it right there. A fiduciary duty will generally include a duty of reasonable care and prudence. That is an objective standard. Mere sincere belief in something crazy isn’t enough to satisfy the duty.

By contrast, if the person to whom the duty is owed wants to do something crazy, the fiduciary’s duty can be satisfied by appraising them of the risks and then abiding by their decision.

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Not if they’re professional; a professional should be able to separate personal beliefs from more objective criteria.

R’s tend to be less regulation than D’s. That’s good for certain industries; invest in them & bad for others; divest from them. We’re already seeing some alternative energy projects being scrapped; regulation won’t be as favorable, gov’t assistance will be less. Your advisor’s personal opinion on whether that’s good for the planet or if he believes reports of global warming is ‘about as truthful as Fauci was about Covid’ :roll_eyes: doesn’t matter if he’s looking to get you the best* return.
Let’s say there’s a company big in DEI - setting up, advising & running DEI programs for other companies. I’d think it’s going to be a tough go for them over the next four years. If I was looking to invest for best return, I would not look at that company, in fact, I’d make a recommendation to sell that stock. Whether your advisor thinks that DEI is wonderful or BS, they need to justify why they’re recommending a particular stock or investment strategy to you otherwise, they’ve failed their duty

-* Whatever current definition you have of “Best”, & that will change as you age, just like your portfolio should - more focused on capital appreciation when you’re young but more focused on portfolio safety after you’ve retired.

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Thanks for the answers so far!

So just to make sure I understand said answers:

If an investor tells an advisor, “hey, I think the dollar will be worthless and America a wasteland by this time next year; I want to completely dismantle my financial situation and safety net to prep,” whether the advisor tells him, “well, if you do that, you run a risk if America doesn’t collapse,” might be dependent on the advisor’s politics, but either way, not saying so would not necessarily be a breach of duty?

And if the advisor thinks the thing about worthless dollar and wasteland, he is not barred from telling clients, but will be expected to justify such extreme advice in detail?

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Note that one financial advisory firm mentions in their commercials that “as a fiduciary, they always put their clients first.” And yet, their fee structure has them taking roughly one percent of the assets under management, year in and year out.

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I worked for a financial institution who prominently proclaimed themselves fiduciary. In theory, it means 100% transparency and the responsibility of the financial advisor to guide their clients without thought for their own gain or personal feelings. Seems like that would / should be the industry standard and really not necessary to mention, yet I interviewed with a large company who is not classified as “fiduciary”. I didn’t ask about it, as that probably would have rendered me a “no”.
It’s never been clear to me how one is designated as a fiduciary. Is it self imposed? Is it official? How can it even be realistically be enforced?

Also, does anyone else think of Mary Poppins whenever they hear the word “fiduciary”?

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They are not barred from telling clients their opinions about what the future holds, but that opinion should be defensible in detail. The trouble with a disaster scenario like that is that it has not happened before, so they would not be able to use past experience to justify or defend it. It would need to be presented very much as a “take it or leave it” opinion, and if they want to keep clients they should still be willing to invest for them as if the disaster was not going to occur.

They have a fixed fee structure based on the value of the holdings, so that if you make more money, they make more money, and if you make less money, they make less money. The contrast is with a financial adviser who gets a cut of every purchase and sale of securities, and who can use that to make more money from churning holdings, even when you are losing money.