It happened again. A well-known financial services industry firm advertising on national television described its captive agents with words most glowing. Fair enough. Self-praise is still allowed. Then it ended with “We call them ‘advisors.’”
My mind screeched with the sounds of a phonograph needle shortcutting across the vinyl. “Advisors? Are you kidding me?”
I call them “agents” and “representatives.” “Salesmen.” There is nothing wrong with any of these terms, but “advisors”? Really?
The misuse of the word is a challenge to the public’s perception of true financial advisors and the distinctions between types of compensation for those who work with people and their money. This is not even to mention differences in fundamental promises and duties.
This is a problem. How is the public supposed to distinguish between agents-representatives-salesmen and genuine advisors? This is not about anybody’s competencies or any other qualities. Some salesmen are great, and they have terrific relationships with their customers and fundamental integrity. Nor is this about compensation sources or conflicts of interest. This is about the likelihood of client confusion.
Face it. There are no saints in this room. Being a financial advisor does not require taking a vow of poverty. And it is no sin to get paid and get paid well for good work honestly sought and for promises kept. Most veterans among us have earned fine livings. We are even smart enough to know that the money we get paid comes from the client whether it is in the form of fees, commissions or a combination of the two. I have my preferences, but in any case we should know the truly important distinctions between fundamental duties.
This is about words meaning what they’re supposed to mean. Agents and representatives are fiduciaries for their employers, not so much for their customers. Some are knowledgeable; some barely qualify as financially literate. Some are honest, others not so much. Some are wise, others not. But their websites sound alike. Their haircuts are hard to distinguish, and their suits and ties are pretty much like one another’s.
This is unfair competition. The term “advisor” has been hijacked by folks who do not really fit the definition.
In this age of money, the public is desperate for quality financial advice. Right now, there are essentially only two ways to get it. One is to work with folks who have strict legal obligations to serve the financial services industry first and foremost. The other is to seek advice from those who have taken enforceable oaths to serve their clients’ interests first.
As we all know, financial planning in its original incarnation (Financial Planning 1.0) was built on the back of financial products. We will never be able to sever that association, nor, frankly, should we even try. Gourmet chefs need access to grocery stores and quality ingredients. Advisors’ similarly need high-quality financial products for a successful financial plan. But these products need to be in the best interests of the client, not the advisor.
There are proper words to describe salespeople in the commercial that offended me, and they are the words “representative” and “agent.”
Representative: a person chosen or appointed to act or speak for another or others. (Also known as an agent, delegate, deputy or sales rep.)
Agent: a person who acts on behalf of another. (Also known as a representative, emissary, envoy, go-between, proxy, negotiator, broker, liaison, spokesperson, spokesman, spokeswoman or informal rep.)
Advisor: a person who gives advice, typically someone who is expert in a particular field. (Also known as a counselor, mentor, guide, consultant, confidante, aide, coach, trainer, teacher, tutor, guru or informal main man.)
In February, I came across an Associated Press article about the Labor Department’s proposed requirements that brokers and RIAs must make full disclosures about their fees and commissions for retirement account recommendations. The article, of course, included the anguished shrieks of vested industry interests proclaiming that life as we know it would be forever ruined should brokers actually be required to tell their customers how they got paid and how much. If the recommendations were implemented, then obviously middle class clients would not get served and a worthy industry would be brought to its knees. And what did the Department of Labor know about the real-life ramifications of fully disclosing the details of compensation? Especially since it had only spent five years studying the issue.
It reminded me of one of my favorite lawsuits, Financial Planning Association v. SEC, when the brokerage industry attempted to exempt itself from the disclosure requirements imposed on investment advisors. That was some eight years ago.
In both cases, we have what would seem to be unambiguous circumstances where client interests would seem to be clearly understandable by anyone purporting to put their interests first.
First, we must address the language head on. We can no longer tolerate blurred lines between “representatives,” “agents” and “advisors.” Next, what would happen if sales reps who took commissions were required to give people copies of their effective invoices? When people get a bill, it generally describes the services rendered or the products provided. Open commission statements could go a long way toward giving folks a chance to know what their deal really is. At the very least, customers ought to be given the opportunity to discern practical differences between authentic advisors with fiduciary obligations and those required only to discern a financial product’s “suitability.”
The Associated Press article quoted a brokerage industry insider who said that investors need choice in both their products and their providers (meaning, they should be able to choose brokers). Indeed, but only if they know what are the actual choices they are making. Otherwise they are just being chumps. Real competition requires transparency.
Of course, this brings us to the concept of “fiduciary” and the precious notion that if you trust someone to help you with your money, they owe you the truth, their loyalty and their fidelity. What a concept!
Can we any longer tolerate blurred lines between advisors and product manufacturers and their representatives? And perhaps, most important, can we any longer avoid these issues or pretend that they don’t affect us?
I suggest there is actually a fairly simple form of resolution available to us. Namely, we could insist that the word “advisor” actually mean something akin to its dictionary definition. What a concept, indeed.
So, Who Are You Calling An ‘Advisor’?
April 1, 2015
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Comments
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There is a serious need for the public to clearly know what to expect when the term "advisor" is used. I agree with the author that this term has become so diluted and misused that most people I speak to are clueless about any distinctions. I believe that only those who hold the appropriate licensing, and/or certifications should be allowed to use that term to describe themselves. So, FINRA and the SEC could draw the line on this issue. You either must be a CFP(R) and/or an RIA/IAR to use the term advisor to describe yourself. For fee only advisors who are not FINRA licensed or RIA/IARs this might be an FTC issue as well. The follow-on step is for FINRA, and the SEC to conduct a campaign to educate the public about what the titles mean. That is, what an agent is, what a financial representative is, financial advisor, etc. Education is an important element. It seems that we are very prone to want to solve some of these problems with regulation when another significant component is educating consumers. So, for example a lot of time and effort is being consumed on the DOL's Fiduciary Rule, when more effort should be put into consumer education and communication with the public. I think there is a lot of regulation that is wasted effort because the public is not being educated. Bottom line is that almost everybody knows what a CPA is, but most people have no idea about differences in credentialing on the financial services side of equation.. That must be addressed.
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Mr. Wagner makes excellent points. The core of the problem, however, is not the industry or its representatives. It is the regulators, who are excessively shy about ever insisting on clear distinctions. Product companies, Broker/Dealers, and Registered Reps. all have a vested interest in keeping things murky. RIA's have made it worse by claiming the mantle of "fiduciary" as a way to define themselves as saints and others as villains. Their definition, however, is both totally immeasurable and a complete departure from any traditional definitions of the term.