The conversation about the fiduciary standard, i.e. worrying about the new burden of disclosure, could be missing an important point.
We are expending a great deal of energy wondering who should be considered fiduciaries and for what services the standard should cover.
For example, should people who sell fixed products or term insurance be fiduciaries? Should it only be people who sell securities? Should it be people who get paid fees versus commissions, or both? Is it those who have certain licenses, or those who have certain kinds of relationships with the end client? Should it be those who only recommend products, or those who advise the client what to do with their money?
Well it might help to think about what the definition of fiduciary really means. According to Wikipedia, "a fiduciary is someone who embodies the highest standard of care, at either equity or law. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty, he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents."
The real question should be why is a fiduciary relationship valuable to those who consume these products and/or the advice?
Let's stop and think a moment about how the consumer population views this industry. If you had to make a guess about how consumers feel in general, would it be positive, negative or neutral? Be honest.
According to a recent study by Maddock Douglas about attitudes toward the insurance industry, we found negative opinions to be pervasive. Here are some of the statements the general population agreed with:
- 74 percent believe insurance agents always try to sell people stuff they don't really need.
- 58 percent say insurance companies don't know or understand the real me.
- 53 percent say most insurance companies cannot be trusted.
- 46 percent say most insurance agents cannot be trusted.
And yes, we are highlighting the insurance companies as much as agents here, because the whole industry is painted with this negative brush.
Don't think for a minute the consumer knows the difference between the interests of the insurance company and the agent, the investment advisor and the broker, or the financial planner versus the product salesperson. These distinctions are all lost in one big haze of mistrust unless a consumer has had some personal experience with an expert with whom he or she developed a trusted relationship. We've even contributed to the problem by deliberately blurring the lines between insurance agent and financial advisor. We can't talk out of both sides of our mouths without adding to the confusion.
All that said, if you were to put yourself in the consumer's shoes, how would the definition of fiduciary sound to you?
In my opinion, it sounds ideal. Who wouldn't want someone who is extremely loyal? Who wouldn't want someone who puts the client's interests above his own? Who wouldn't want someone who does not profit from the relationship unless there is consent? And by the way, if an advisor is thinking and behaving in accordance with this standard, who would deny him the ability to make a profit from it? Not me. I'd give the advisor that in spades and refer her to all my friends.
See also: For fiduciary advocates only
