Clark At Large

It’s recently occurred to me that the current debate over a fiduciary standard for financial advisors has been focused on only half of the issue: Advisor behavior. The other side to this gilded coin is the behavior of the clients. I’m not talking here about “disclosure” or “investor education.” Disclosure is a red herring that’s clearly failed because financial consumers predictably don’t know enough to understand the implications of what they are told; and anyone who thinks they can know enough to not need a financial advisor in the modern world deserves exactly what they’ll end up with—a lot less than they should have.

But this does bring us to the real point: The vast majority of financial consumers have shown time and again that they don’t value financial advice enough to pay for it. So they get their advice “for free” from a broker or agent who is getting paid (one way or another) by the sellers of the financial products they recommend. The financial services industry then contributes to this delusion by spending billions telling people how great this free “advice” is. Sooner or later, in the immortal words of Claude Raines, we’re all “shocked, shocked” to find out that some of this “advice” wasn’t in the clients’ best interest. Duh!

It’s this pervasive belief in our society—that we can get something of value for free—that underlies the “problems” with financial advice that Washington is wrestling with. (We have the same problem with our news media: we all agree that democracy depends on “the people” getting accurate information, yet we expect to get our news for free on TV or radio or for a small fraction of its real cost in newspapers or cable.) This, of course, opens the door for the SIFMA and FINRA free-market argument: If that’s what people want—and they clearly do—who are we to tell them that they can’t have it?

I have to admit, it’s a persuasive argument, and one that most professions are wrestling with these days: Turbo Tax, online wills and contracts, alternative medicine and herbal healers all are attracting great demand, and caveat emptor on the folks that use them. What’s the answer? Should we actually force people to pay directly for fiduciary financial advice?

Common sense tells me: “no.” But my free-market leanings are whispering: “yes.” Maybe the full-disclosure folks had it right all along. But I’m talking full disclosure. I wouldn’t sleep well at night unless the warning label on non-fiduciary advisors read something like this:

This financial advisor does not work for you: He/she is (your affiliation here: a sales representative of ABC brokerage firm, or a sales agent of XYZ insurance company, etc.), and as such has no duty to act in your best interest, and anything he/she tells you may or may not be to your financial benefit.

 How do you think SIFMA would feel about that?

Well, Morris, you (and/or I), seem to have stirred up at least a micro-hornet’s nest with the grandfathering issue on certification. I think your responses largely speak for themselves, but I am a bit puzzled about why you seem taken aback by my working definition of “grandfathering.” Unless you’re claiming to have invented the phrase (which would rank right up there with Al Gore’s invention of the Internet), you’re not really free to define the term any way you wish. For a more authoritative source, I consulted Black’s Law Dictionary, which defines a “grandfather clause” as: “a provision in a law or regulation exempting those already in or a part of the existing system which is being regulated.” 

Now, I understand your desire to limit the scope of  “grandfathering” to only the CFP Board’s exempting existing CFPs from the comprehensive exam (over 15 years ago, btw), so that action appears more sinister ( believe me, the Board doesn’t need any help with that). But the fact is that grandfathering is a broad and widely accepted practice frequently used by lawmakers, regulators, and professions, alike, including numerous instances by the American College. The bottom line with professional credentials is that we—the public—trusts existing professionals to establish education, knowledge and ethical criteria to ensure the public continues to benefit from professional services in question.

Which brings us to the real matter at hand. I’m guessing it’s no coincidence that you published your diatribe against the Board at the same time that the American College has stepped up it’s “we-have-the-best-financial-planning-designation” to coincide with its current anti-fiduciary standard media campaign. It seems the AC, in it’s continuing efforts to benefit insurance consumers everywere, is taking a firm stance against the proposed fiduciary standards for financial advisors. According to a source who attended one of their media briefings, the AC’s contention is that an unintended consequence of establishing a broad fiduciary standard for advisors would be to reduce consumer choices because many reps and/or other intermediaries would be forced out of the market.

 Let’s just consider that for a moment. If everyone who currently gives financial advice to the public were suddenly required to put clients’ interests ahead of their own interests and those of their affiliated institutions, then many of them would have to leave the business??? That doesn’t really say much for the current financial services industry, does it? In fact, that might just be the best argument in favor of a comprehensive fiduciary standard that I’ve heard yet. I didn’t really think it possible, but compared to thinking like that, the CFP Board looks pretty darn good.