serious woman's face It’s very possible, while carrying out the fiduciary responsibility, the fiduciary will knowingly avoid what a client expressly asks for in the process of knowingly providing what the client needs. (Photo: Shutterstock)

The prospective antique car buyer raised his eyebrows in disbelief. “$20,000?” he asked, “The book value is only $12,000.”

“I’d like to get paid for all the time and effort I put into working on this car,” explained the seller in a plaintive voice.

Read: There is no such thing as an ‘accidental’ fiduciary – Carosa

The sounded reasonable to the prospect, so he went down the entire list of restorations and urged the owner to describe how and what he did. In each, the seller responded, “Oh, I didn’t do that. The previous owner did it.”

“So then,” concluded the buyer, “if I’m to pay you for all the time and effort you put in as you demand, that means you expect me to pay you nothing.”

“Huh?” was all the owner could say.

Just as in the above story where the buyer wants to know all about the car’s owner, so too must the fiduciary focus exclusively on the client. Even more, good fiduciaries focus on their “knows” (see “The Three Most Important Practical Things You Must Know as a Professional Fiduciary,”, July 26, 2018).

Except there’s a twist to this. It’s a twist many fiduciary-wannabes accidentally fall prey to: It’s too easy to misinterpret “knowing your client” for “the client is always right.”

Read: We have reached the moment of truth for ‘fiduciary’ -  Carosa

The latter phrase comes from the retail industry. It is intended to make sure customers are satisfied so they will keep coming back for more. In the case of a fiduciary, however, the service provided does not represent a continual sale. At least it shouldn’t. And if a client doesn’t understand that, the relationship will quickly die.

A fiduciary “sells” only one thing – trust. This should surprise no one. After all, the granddaddy of all fiduciary services is the trust company. These banking relationships created trusts which ceded over property and goods from the grantor to the trustee for the benefit of a named beneficiary. These weren’t merely a relationship built on some intangible “trust;” these were literally legal documents called “trusts.”

Think about what the grantor does when he creates the trust. He willingly gives his property to a third party for safe keeping. In the process – and most emphatically in the case of irrevocable trusts – he gives away that property and agrees never again to act like an owner of those assets. The trustee then must treat that property in a fiduciary capacity, only using it in a way that benefits the beneficiary.

Do you see why a client who treats a fiduciary in the same manner as a retail relationship fails to understand what a fiduciary must do? Do you also see why a fiduciary even contemplates taking a “customer is always right” stance can quickly violate his fiduciary duty?

Yes, a fiduciary must “know” the client (or, more appropriately, the beneficiary). But he or she must also know what a fiduciary is responsible for. These are potentially two mutually exclusive positions. 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.

Here’s a quick example. The fiduciary knows the client needs to earn an average annual return of 7% over a 40-year period to have the best chance to retire in comfort. The client, however, doesn’t have the stomach for stock market volatility and, in light of rising interest rates, demands his retirement funds be invested in bonds.

A good fiduciary, knowing buying today’s bonds will not provide an annual yield of 7% (and, indeed, knowing that they are poised to lose value when, as expected, interest rates rise), will not buy those bonds.

Why? Because a good fiduciary is focused on the client’s real need of that 7% annual return, and knows, in the long run, stocks offer the best chance to make that goal.

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.