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Fiduciary Minefields: The Agency Mess

Relationships and terminology may define what you do for clients, but do your clients fully understand your legal, moral, and ethical context for delivering extreme service excellence and protecting their interests and goals?

How clear are you and your communication, in all formats and platforms, about related fiduciary responsibilities?

A recent report addresses these issues for the real estate industry, so it offers an excellent example of misconceptions and missed opportunities which may exist in your industry and your communication as well. The bonus is we’re all real estate buyers, sellers, and investors, or wanna-bes, so this is a valuable read on many levels.

The Consumer Federation of America (CFA — www.consumerfed.org) started the year off by releasing the report authored by former-executive-director and Senior Fellow Steve Brobeck and entitled “The Agency Mess:Home Buyer and Seller Confusion and Costs Related To Diverse and Poorly Enforced State Laws about the Role and Responsibility of Real Estate Agents. The title tells the miscommunication story. The report incorporates CFA’s research of the literature on real estate agency, CFA’s mystery shopper survey of agents, and a national consumer survey.

I asked Brobeck my questions during a media conference to clarify the communication confusion which can lead to compromised fiduciary relationships, financial loss to buyers and sellers and, therefore, potential loss for real estate brokerages and professionals.

PJ Wade: Could you give us a very exact definition of agency law and what the fiduciary duties are to the client (…the client’s interests above all else but the law) and to the customer who is the third party. Also, in that answer, give us a clear definition of what the word “agent” means and to whom it can be applied. Is it the brokerage, is it the salesperson…?

CFA Steve Brobeck: “[CFA] is considering, in this report, every real estate professional that works directly with the home buyer or seller to be an agent. Some of those agents are just agents and some of them are brokers. But we do not really view a material difference, from the view of the consumer, between having an agent-agent or a broker-agent. So again, when you look at this report, you will not see the term “broker” used very often.

Define fiduciaryThe fiduciary is obligated to procure (and I’m quoting from another source here) the greatest advantage for his client. The occasion of that being if you are the seller agent and you are working with a seller, you have an obligation to get the highest price, sale price for the house. If you are a buyer broker, you are obligated to get the lowest price for that house.”

PJ Wade: Do the real estate practitioners, brokers, salespeople, the agents— really understand these [agency and fiduciary] distinctions as clearly as they must?

CFA Steve Brobeck: “I think that’s part of the problem. There are several issues related here: the complexity of the law, the variation of the laws, and even the definition of the terms from state to state are not just very, very difficult for consumers to understand. They’re difficult for many agents to understand. Keep in mind, too, that there are 1.2 million, 1.3 million, 1.4 million practicing agents. Some of them have only been practicing for a year or two. In some states, the training is not very rigorous; in other states, it is. They may not fully understand all of these terms and the law in their particular state. The problem is there just hasn’t been any effective monitoring, so even if they are ignorant of the law and they don’t make required disclosures, no on ever calls them on it.”

PJ Wade: So would it be a fair summary to say that fiduciary duties of the agent to the client are to keep the client’s interests above all else but the law? And for the customer—the third party—would responsibilities be fairness and not to misrepresent and care of answering?

CFA Steve Brobeck: “Yes, I think that is a good summary.”

PJ Wade: What should a consumer do if they feel something going wrong? Should they complain to CFA or…?

CFA Steve Brobeck: “I think the first thing—we’re trying to keep this as simple as possible. We’re hoping that the nonprofit groups with whom we work—as you probably know CFA is an association of 240 members [ https://consumerfed.org/history/ ]—and we’re going to be putting this information out for them to communicate to the people with whom they work. We hope the media will communicate this.
We are also going to be communicating with the State Real Estate Commissions and, I hope, [encouraging them] to take a more active role in informing the consumers in their state about agency relationships.
But the key thing is ‘Don’t make it too complicated!’ As I indicated in my prepared statement, people just need to know whether the agent they are working with is a fiduciary. If they are not a fiduciary, what is their role? Their role, if [working with] a buyer, could be a subagent, could be a transactional broker, but [buyers] need to know that.
I don’t think the industry is going to oppose us. They certainly took leadership in the 1990s in terms of passing state laws that actually did some good, but now we need to review those laws. We need to review them, simplify them, and, just as importantly, ensure they are enforced. Ensure that there’s not just heavy-handed enforcement, but that each Realtor, each real estate agent feels that they are obligated, morally and ethically obligated to disclose their relationship to their customers.”

PJ Wade: So, ethically, morally, and legally…

CFA Steve Brobeck: “Well, they are, in most states, legally obligated to provide disclosure. But you know, given the situation, we are not really going to solve the problem unless all real estate agents feel that they not only must comply with the law, but that they have an ethical obligation too, at the earliest substantial contact, to clarify their role as an agent to their customer.”

Did parallel examples of miscommunication and misunderstood services and client relationships come to mind as you read this interview?

The 14-page report, The Agency Mess, provides more detail on the range of fiduciary relationships that exist, most of them beyond what consumers may expect. Without understanding each type of relationship and related fiduciary duties, consumers don’t understand when to confide financial information and when not to reveal their true feelings about a property.

  • Are your clients right about what they are getting for their money when they work with you?
  • Do you survey and interview clients to be sure you understand exactly what they don’t?
  • How do your efforts stand up against relationship definition efforts by competitors?

As a real estate consumer or owner, what is your reaction to The Agency Mess?

Inspiration Is Your Choice

How do you become inspired?

Do you associate inspiration with classic external influences like heroic deeds and nature with its spectacular sunsets and much more?

In reality, whatever your setting, environment, or context, inspiration starts within each of us.

Inspiration is a conscious awakening of creativity, problem-solving, or your special interest or thinking style to reveal otherwise overlooked or untapped potential.

Inspiration involves stimulation of mind and emotions in response to something or someone when we pay attention. Observe something, someone, or some event and react to it by opening your mind to wonder: “How can this experience be interpreted or applied in a different context or to solve a different problem?” Now you’re inspired!

Inspiration is always all around us and within us. An endless and often surprising array of things, activities, problems, or creativity abounds to act as stimulus for a wide range of inspiration.

Summits and conventions are a significant source of fast-forward inspiration for me and my clients. An invitation to attend the recent 109th Rotary International Convention held the added attraction of its theme: “Inspiration around every corner.” I joined 24,000 Rotary members from 175 countries—a mini-United Nations.

  • International big-name speakers and special projects like peacebuilding and end polio inspired many. The showcase of projects presented tradeshow-style as the House of Friendship was inspiration central for me and thousands more.
  • Large-scale events charged up many attendees, but there was inspiration all around us. A chance happening really touched me. A few hundred Nigerian Rotarians, most in native dress, spontaneously burst into their national anthem as the picture-only broadcast of a World Cup Soccer match featuring Nigeria began. Their obvious joy at singing together was only second to my amazement that they all knew all the words and sang them with gusto. Maybe helping people learn to sing their national anthem with obvious enthusiasm is a worthwhile project?
  • I learned a lot from the many Rotary members from around the world that I met. When I asked, “What inspires you about this Convention?,” they all exuberantly told me. The most common response revolved around meeting and re-meeting friends and colleagues they had worked with and stayed with around the world. The many other inspirations gave me food for thought and helped me see fresh opportunity around me and for my clients.

 

What I am reminded of time and again is that self-inspiration or training yourself to remain curious and to wonder about everything is a powerful and under-utilized skill.

Instead, of keeping your eyes on a screen where things—largely marketing—are fed to you, maintain curiosity and wonder as you move through the real world. Consciously, take this constructive stance at least part of each day and you may get hooked.

About Rotary: Rotary ( rotary.org ) brings together a global network of community leaders dedicated to tackling the world’s most pressing humanitarian challenges. We connect 1.2 million members from more than 35,000 Rotary clubs in almost every country in the world. Their service improves lives both locally and internationally, from helping those in need in their own communities to working toward a polio-free world.

Entrepreneurship: What’s Your Edge?

Serial entrepreneur Tunde Kehinde’s successful mimic of Amazon astounded Africa—and many others, too. Now, he fosters entrepreneurship across the emerging African market of 1 billion…and beyond.

Dynamic entrepreneur Tunde Kehinde, with three successful start-ups to his credit and another well on the way, shared ideas on entrepreneurship and emerging markets as a speaker, panelist, and attendee at the recent Global Forum. I had the privilege of speaking with Kehinde privately to explore entrepreneurship further.

Listening to Kehinde explain his business theories and strategies, I was struck by one question: “What gives Tunde Kehinde his unique entrepreneurial edge?

The list of career highlights for this man—who has many more decades ahead—is already impressive. When matched with essential entrepreneurial skills, the list explains a lot about his serial success, but not everything…

  • Nigerian Kehinde credits his education and work experience as the foundation of his entrepreneurial success. A finance major, he earned an MBA at Harvard Business School. Hands-on experience as a business development executive with Diageo in London and as an Investment Banking professional with Wachovia Securities in North Carolina and New York City revealed the difference between theory and reality. This experience accounts for his solid foundation in analysis, quick thinking, and flexibility, but it’s only the beginning.
  • This impressive communicator has a warm, natural style and a creative command of public speaking that facilitates his delivery of his point in any context. For all these reasons, he was a popular Forum speaker. One media colleague referred to him as a “rock star” since each time he spoke, lines of attendees gathered, eager to speak with him and snap a pic. Essential communication skills and salesmanship often separate successful entrepreneurs from those who merely have a good idea, but there’s more to this.
  • Kehinde’s track record has created a credibility and momentum that makes future success almost predictable:
  1. Kehinde began by co-founding Bandeka.com, an online dating platform identified by Forbes Magazine as one of the hottest tech start-ups in Africa.
  2. Then, he saw the need for a version of Amazon that would fill infrastructure and other system gaps for Africa and Jumia.com emerged as Nigeria’s leading ecommerce platform. As Co-Founder and former Managing Director of Jumia, Kehinde helped grow the business from 5 employees to almost 1,000 to serve customers across Nigeria.
  3. Next, he emerged as the Co-Founder and Co-Managing Director of Africa Courier Express (ACE) (www.ace.ng), a technology-driven logistics platform, that enables ecommerce companies, financial institutions, and healthcare businesses to ship items directly to consumers across Nigeria. ACE shipped to almost 400,000 customers and collected payments on behalf of 1,000 merchants. ACE plans to expand across Africa.
  4. To address financial and banking barriers for ACE clients, merchants, entrepreneurs, and the growing African online middle class, Kehinde co-launched Lidya.co which offers easy, reliable, secure online access to finances.

What gives Tunde Kehinde his unique entrepreneurial edge?

When I explained to Kehinde that I had met entrepreneurs with credentials similar to his that explained his and their polished professionalism, he nodded. When I went on to say that I saw more than the sum of these parts in his ability, magnetism, and calm resolve, he smiled. When I asked, “How’d you get so smart?” He laughed and began to explain…

Acknowledging the importance of education, career opportunities, and practical start-up experience, Kehinde revealed that his parents were both entrepreneurs. The entrepreneurial mind set was ingrained in him. That’s what makes the difference for him.

That’s the key to a powerful entrepreneurial edge: a clear inner, empowering “you can do it” voice.

This inner determination is either instilled early in life or deliberately acquired later. Parents who embody entrepreneurial drive and repeat entrepreneurial sentiments to their children can be powerful role models. The resulting family environment, can make the business drive to succeed part of both conscious and unconscious thinking and decision making in the next generation.

Family is what gave Kehinde a very early start and a unique entrepreneurial edge. He’s taken it from there.

What gives you your entrepreneurial edge?

Even if your parents were not in business and never encouraged you—or, perhaps were even a discouraging force—that inner certainty came from somewhere. The more conscious you are of how your certainty arose, the more in control of it you’ll be, even in the toughest times.

For more from Tunde Kindhe…see “Harnessing the Potential of Emerging Middle-Class Markets” in “Explore New Markets At A Global Forum

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