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It is education, not regulation that is truly in the best interest of consumers

moerdyk

First of all, regardless of the differing viewpoints surrounding the DOL fiduciary rule, a few things need to be clarified.

  1. There are already financial advisors who DO act as fiduciaries, and ARE acting in the best interest of their clients. I think it is only fair to state this because those of us who are already fiduciaries seem to be getting lumped into the group who are not.
  2. Some articles are stating that 401(k) participants will suddenly stop paying high fees. The compensation paid on 401(k) plans may not change much with the rule. Making a broker take on fiduciary responsibility does not necessarily mean 401(k) fees will go down.
  3. The rule does not state that “best interest” means lowest cost. Suggesting that no consumer will ever over pay for advice again is wrong. There is not a uniform standard of which fee-only advisors subscribe. There are wide ranges of fee schedules out there, and some border on excessive.
  4. There are millions of investors that this rule would not have helped anyway. That is every person who has an account not covered under ERISA. I don’t hear any intellectuals fighting for this rule ever mention that point. What about the teachers in non-ERISA 403b accounts? What about the millions of dollars in 529 savings plans? How about all of the non-qualified stock accounts at the wire-houses and brokerage firms. Oh, and let us not forget, non-qualified annuities are not covered under this rule either.

 

I fully understand and appreciate the concern for consumers to be treated fairly from financial professionals. It is a mission of mine, as well as others fighting for the credibility of the profession, and the reason that I was for the rule to start with.

However, I now feel slightly different, and contend that the mistake made by the DOL was in choosing which word to re-define. Consumers do not need a new definition of fiduciary, what they really need is a proper definition of the words financial advisor. We must define advisor versus salesperson. This is the only way to ensure that consumers know how to find a professional who will serve them in the way they want to be served.

People are smart, and they can make their own decisions if given the proper knowledge. The best thing the industry could do for consumers is once and for all define who is, and who is not, a “financial advisor”. Again, we must define which financial professionals are salespeople, and which are advisors. It is not in the best interest of the consumer to make all financial professionals fiduciaries. There is a lot more involved in acting as a fiduciary than the title.

The ability for a financial professional to act in a fiduciary capacity takes a great deal of knowledge and competency. Why is it a good idea for the consumer if suddenly salespeople are given fiduciary responsibility? That would be like creating a regulation that all flight attendants are now going to have to be called pilots because it would be in the best interest of everyone on the plane. Sure it may sound better, and a pilot is more experienced with the plane, but not just because of the title!

Furthermore, I believe that there are good salespeople, earning an honest living, doing good things for their customers. I don’t want them to stop doing what they are doing, I just don’t want them to call themselves “advisors”.

Plus, where does it end? There isn’t a salesperson in the world in any industry that can be completely without conflict of interest. Everything we buy is in existence because someone else is making a profit from selling their product. Should we just have “goods and services” advisors now who tell us which products are in our best interest, and we pay a 1% fee to this person every year so no one can ever make a commission on any product ever again? Obviously not.

Therefore, I suggest the best solution would be the creation of a rule stating only those acting in a fiduciary role be allowed to use the term “financial advisor”, and that all others disclose they are salespeople. Such a rule would raise the standard of the profession by creating a higher bar for using the term advisor, and also would give consumers an easier way to identify exactly who is a fiduciary.

 

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