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Practice Management

Knowing the Client May not Always = Knowing Client Needs

In order to serve a client effectively — and fulfill fiduciary duties, BTW — a fiduciary of course must know their client. And one also must pursue the client’s best interest. But it’s possible that those goals may not always be congruent; in fact, they may even be mutually exclusive, argues a recent blog entry.

In “Do You Have the ‘Knows” to Be a Fiduciary?” Christopher Carosa posits that knowing what a fiduciary is responsible for — and being faithful to that knowledge — may not always be the same thing as knowing a client and what the client wants.

In essence, what Carosa argues is that it is possible that sometimes in exercising one’s role as fiduciary, one may have to not provide what a client asks for in order to best serve that client’s needs. “It’s very possible, while carrying out that fiduciary responsibility, the fiduciary will knowingly avoid what a client expressly asks for in the process of knowingly providing what the client needs,” he writes.

Carosa warns that it may be tempting to follow the retail industry maxim “the customer is always right.” Calling it “a twist many fiduciary-wannabes accidentally fall prey to,” he says that “It’s too easy to misinterpret ‘knowing your client’ for ‘the client is always right.’”

“A fiduciary,” says Carosa, “’sells’ only one thing — trust.” But, he argues, ultimately that trust may entail taking actions that look to the long-term client’s interest, which may mean not acting on more immediate, transitory sentiments a client may evince.

For instance, Carosa suggests, suppose a client wants a certain annual return over a long period in order to be able to afford a comfortable retirement. That client is afraid of stock market volatility and also is concerned about interest rates, and wants their retirement funds invested in bonds. But, he writes, a good fiduciary, knowing that bonds will not provide the annual return the client wants and that stocks will best meet that goal in the long term, may not want to buy bonds.

And, Carosa cautions, such an approach can protect a fiduciary as well. “Pretending the client is always right may give many service providers a good feeling (at least in the immediate term), but it can increase a fiduciary’s liability by inadvertently ignoring their fiduciary duty,” Carosa writes.