The President’s remarks on Monday (February 23, 2015) about the DOL’s re-proposed fiduciary standard are an excellent illustration of the two faces of a fiduciary standard. On the one hand, President Obama singled out great advisors who are doing the right thing for their clients. He then changed his tenor and talked about advisors who are “selling snake oil.”

As I considered the President’s remarks, it occurred to me that there are two faces to a fiduciary standard – Positive and Punitive – and it’s critical that the industry be able to distinguish between the two.

The first face is Positive. The presupposition is that advisors are honest and ethical and have the passion and discipline to protect the best interests of their clients. The purpose for defining a Positive fiduciary standard is to provide the details on how the advisor can improve their investment decision-making process. Let’s inspire advisors to do even better. An example is the handbook, Prudent Investment Practices, written by the Foundation for Fiduciary Studies and published in 2003. [To view a copy of the handbook, open a search engine and enter the words - SEC fiduciary practices – the handbook will be the first item shown. In the interest of full disclosure, I was the founder and President of the Foundation.]

The second face is Punitive. The presupposition is that there are advisors who are not honest and ethical, and who put their own interests first. The purpose for defining a Punitive fiduciary standard is to define rules which will restrict or prohibit all advisors from certain activities. Let’s define rules in terms of negative motivation – follow the rules, or face the consequences. A good example is the direction the DOL wants to go with its “conflict-of-interest” rule which has been sent to OMB. The DOL’s mood is reflected in the Secretary of Labor’s remarks, which followed the President’s on Monday:

This isn’t right, and we have an obligation to fix it. Consumers deserve to know that their advisor is working for them. Common-sense rules can protect investors and consumers, prevent abuse, and ensure that brokers and advisors provide advice that is in consumers’ best interests.

Most of the fiduciary advocacy we have seen since the Dodd-Frank Act was signed in 2010 is Punitive. Different groups have been formed; each declaring or implying that only their members have a true understanding of what it means to be a fiduciary. Their messaging is negative – join our church if you’re a true believer – sinners are not welcomed.

The fiduciary movement started approximately 30 years ago. For the first 25 years, the objective of the movement was to define best practices associated with a Positive fiduciary standard. The philosophy was simple and straight forward: A rising tide lifts all boats. If we can improve the investment decision-making process of investment fiduciaries, we can have a positive material impact on the fiscal health of our nation.

We’ve lost our way in defining a Positive fiduciary standard. Fiduciary is no longer a point of inspiration for moral, ethical and prudent decision-making. If we don’t act now, we’re all going to suffer under a regime of negative motivation defined in terms of a Punitive standard.

Don Trone, GFS, is the founder and CEO of 3ethos. He has been involved with the fiduciary movement for more than 28 years. He was the founder and former president of the Foundation for Fiduciary Studies, and was the principal founder and former CEO of fi360. He has authored or co-authored twelve books on the subjects of fiduciary responsibility, portfolio management, and leadership.