“What’s dangerous is not to evolve.” —Jeff Bezos
Throughout its history, “financial planning” has been the subject of confusion. We have to consider whether John Oliver got it right in his hysterical HBO commentary about financial “advice” and retirement (see YouTube). Suffice it to say, he was not overly impressed by his own experiences with 401(k)s, financial advisors or the value of professional assistance.
So it was an important time for the U.S. Department of Labor’s fiduciary standards to come at us like the proverbial freight train.
Thank goodness! IMHO, they could not come too soon. Hopefully, the rest of the financial services industry will soon follow.
It is almost impossible to conceive of financial planning’s emergence as an authentic profession without no-nonsense fiduciary standards. This would be almost as impossible as maintaining the hope that ours could become an authentic profession while continuing to blur distinctions between its legitimate practitioners and industry pretenders. Given that, these standards are not to be feared, but welcomed.
Of course, critics are predicting disaster. From lawsuits to passive avoidance strategies, the would-be negaters are doing their level best to forestall the consequences of these reforms.
Boiled down, what is at stake is bringing the engagement and sales process into the 21st century, aligning minimum standards of duty and care with venerable standards of fiduciary obligation. What is at stake is that so-called advisors may be called upon to defend why a particular sale or recommendation was in a client’s best interests. Horrors. Now salesmen are going to have to call themselves salesmen or accept that the clients’ interests trump their own.
Of course we know that existing “standards” have all too frequently led to abuse and bad results. We have all heard stories about the sales of inappropriate (albeit “suitable”) securities and a variety of other vehicles. This arrangement has put the meaningful power, together with the potential for abuse, squarely in the hands of the financial services industry and its salesmen while exposing individuals to abuse, particularly inappropriate uses of their hard-earned money. Fiduciary standards, on the other hand, leave some of the risk with the folks asserting such meaningful power. It sure beats simply saying “buyer beware.”
Personally, I can only wonder what these people are thinking. What do their brains actually process as they repeat the suitability standards to themselves? Their inner dialogue must go something like this: “Mr.\Ms. Client, you may not know this but I’m not really your friend here. Even though you think I’m the smart guy in the room and understand your wants, hopes and needs, even though you are relying on my advice and have confidence in my advice, it is all really just a sales pitch.”
Wrong answer.
This Is A Big Deal
For those of us who consider ourselves to be part of an authentic profession, this is a big deal. It deserves the fervent support of each and every legitimate financial planner. Moreover, it comes with tremendous implications for the social fabric of this country.
It is entirely possible that the whole fiduciary concept has been messed up beyond recognition by miscellaneous statutes and special interest case law. But I don’t think the definition of “fiduciary” is all that tough. Personally, I go back to the common law. As I learned in my law school days, a “fiduciary” is essentially an individual possessing superior knowledge and power about certain matters who freely accepts the reliance, trust and confidence of someone less knowledgeable. In other words, if you say to another person, “Rely upon me, trust me, have confidence in me” about these particular, generally inchoate issues, knowing that you are the one who understands them, then you are a “fiduciary.” If indeed you are, just do your job honestly, in the client’s best interests, in a way you could defend to your mother. Is that so difficult?
And if you work with individuals and their money and do not do that, then shame on you.
Seriously, this is the whole deal in a nutshell. Trust. Confidence. Reliance. Since we are members of an aspiring authentic profession, is this not the standard we should all freely encourage and accept?