Just For The Hale Of It

In Their Best Interest

In researching this month’s cover story on fiduciary vs suitability, we literally threw up our hands and wondered: how the hale can this thing ever be resolved?
We concluded that it can’t. It’s like trying to change someone’s position on abortion. Or converting a Met fan to a Yankee fan. It can’t be done. Neither issue has room for an acceptable compromise.

The futility of the fiduciary vs. suitability debate lies in the fact that you can’t legislate – or regulate – morality and judgment.

Ask any financial advisor if he or she is putting clients’ best interests first (the fiduciary standard) and the response will likely be:

Of course. . .

Even though the majority of advisors are not operating by a strict interpretation of the standard and some come nowhere close.

No matter what the language in a law or regulation, the way a consumer is treated depends on the “human factor”, i.e. his/her individual financial advisor.

Some consumers enjoy the ultimate: an experienced, knowledgeable and passionately conscientious advisor who lives by the fiduciary standard even though his/her requirements are “lower.” This is an advisor who always puts the client’s best interests first – without regard for any commission or fee that results from a recommendation.

Other consumers will be advised by those with considerable experience and knowledge, but who feel a particular investment or insurance program doesn’t have to be the best fit – just so it’s suitable. Then there are those who strive to recommend the best fits, but don’t have the knowledge and experience to do it.

Still other consumers are served by advisors for whom the clients’ interests are subservient to their own – no matter what. It’s always what pays the highest commission, or counts toward a trip. Some of these are crooks, but most of them don’t know any better. Trouble is there are enough of them to make headlines that scar everyone, give politicians the chance to sound off and make more headlines, make compliance officers ever more wary and encourage regulators to play “gotcha” like a highway cops in rural Georgia.

These “classes” of advisors – and countless variations of them – will continue to flourish no matter what Congress, the SEC, FINRA, or any professional organization says or does. The only reasonable hope is to minimize the bad and maximize the good.

So how do you do that?

It’s like the suit guy says: An educated consumer is our best customer (or client).

But what’s the consumer to be educated about? What does one have to know to be a wise financial consumer/investor? What is the foundation on which one can build by simply paying attention to what’s going on and doing some reading now and then?

The professional associations in financial services would have different versions of how such a foundation (or curriculum) should look. Certainly, there would be differences in emphasis and a lot of disagreement on what should be in and what shouldn’t.

But so what? Why not give it a try?

Suppose the financial service organizations that represent the “retail” advisors who serve individuals and small businesses – like the National Association of Insurance and Financial Advisors (NAIFA), the Financial Planning Association (FPA), the Financial Service Professionals (FSP), the National Conference of CPA Practitioners (NCCPAP), the estate planning councils and the National Association of Independent Broker Dealers (NAIBD) -- all got together on this.

No regulators, politicians, or ivy tower educators – just financial advisors, the pros who serve the folks. They would debate, negotiate, compromise and finally come up with a Foundation For Consumer/Investor Literacy.

They would then take this to the streets – educate millions of consumer/investors through any number of venues: adult education, church and civic organizations, political clubs, service clubs, etc.

Done right, something like this could attract media attention and catch on like wildfire. The potential:

* Educated consumers who, through the sheer force of their demands, would move more financial advisors toward the fiduciary standard.

* Lessen the hue and cry in Congress for more and more regulation.

* Renew public trust in those who call themselves financial advisors.

This doesn’t have to wait for the national boards of directors to do something. It can start small – in places like Newark, Brooklyn, Queens, Melville, White Plains or Bridgeport. What’s learned from these “experiments” could be used to forge a national program.

Why not start it? Now

FA

E. Hale Jones
FA Editor & Publisher

Email your comments and questions about the ‘Hale Of It’ to editor@financialadvisorpublications.com