“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? 

The Stakes

This is no place to be kind. Our legitimacy is at stake. We have played kindness games with our imitators for way too long. We have endured industry’s failure to abide by the sentiments of the FPA v. SEC ruling on broker-dealer exemptions. We have tolerated gimmicks of various sorts by people using the word “fiduciary.” We have not fought back when both salesmen and industry periodicals have muddied the meaning of the words “advisor” and “financial planner.” We ought not to play games with the Department of Labor standards. This is not the time.

In that vein, I suggest we are witnessing the most important reckoning the financial planning profession has ever faced. Both the internal and external realities of what is taking place will determine the future of the profession for all time, at least within the United States. The idea is to try to keep good guys from getting lost in the crowds of wannabes claiming to be planners. The pretenders are hardly great respecters of the six-step process, yet they deceive and parade as if they were. In consequence, they confuse the woebegone with fancy suits and offices, befuddling vocabularies and using credential letters signifying who knows what.

In contrast, authentic financial planners need to line up behind the Department of Labor. The new rules will not make every kind of behavior accountable, but it is a singular opportunity for us to get some things right—like accepting loyalty to client needs as a bedrock principle. More clarification about the nature of planning and its delivery will come later. 

End The Confusion

Why is it good that this is happening now? Because it will end the confusion (illustrated by John Oliver’s complaint). In a way, the Department of Labor did us a huge favor in this regard: It created a public line of scrimmage for authentic fiduciaries to do battle with the status quo. Think of other disrupted industries (like those that made buggy whips). Narrow-visioned defenders of the old guard have every reason to hang on for as long as they can. Inevitably, time will have its way with them.

It’s also a good time because of the challenges facing an aging and under-saved nation. Neither the country nor its individual citizens have long-term savings to waste on antiquated, underproductive or obsolete retirement systems. People are living longer, which means the rules for investing are changing and the status quo will have to change too. Many folks are going to be zigzagging between their insufficient funds and various systems of public support, so the public has a vested interest in seeing that retirement savings and investments are maximized and reliable. 

The Department of Labor, which focuses especially on retirement and retirement accounts, has a role to play here because this is not an arena in which the words “buyer beware” are particularly effective. We are not talking sophisticated end users. Financial issues are not intuitive. Unsophisticated consumers can be drowned in financial jargon and are generally unequipped to understand much of what is being presented, whether it’s by a fiduciary or non-fiduciary.

It’s tough to make a living selling term insurance and plain vanilla investments to people of modest means. Maybe that should tell us something. 

It raises questions for the financial planning profession: Namely, what is it that financial planners really do and whom do we serve? Are we wealth managers? Advisors? Salesmen? Are we a profession? Do we just mainly serve the top 10% of net worth? Or do we need to broaden our horizons? Can any vocation claim the stature of an authentic profession serving only 10% of the population? Or do we need to find ways to work on behalf of the bottom 90% … … starting with their retirement accounts?