Last week the Institute for the Fiduciary Standard proposed eleven Best Practices for advisors and brokers who seek to meet the true fiduciary standard. While these Best Practices are crafted to mainly assist investors in evaluating investment and financial professionals on their adherence to fiduciary duties, they also serve a larger purpose.
Best Practices also provide the basis for a new conversation in the public square between fiduciaries and investors — a conversation meaningful to the mailman in Kansas City.
Best Practices strive to be concrete, verifiable and understandable to ordinary investors, attributes not found in many codes of conduct or standards. More often, codes and standards are general and aspirational in nature or incomprehensible or both. Without the aid of legal counsel it can be hard to know what they mean. And it's easy to get blank stares from investors when you talk codes or standards.
What's behind these blank stares can be confusion, skepticism or general distrust of financial professionals. It's not fair, of course, but "fairness" is not the issue. Investors generally see Bernie Madoff when they hear the words "I'm a financial advisor." The wounds from the financial crisis and its aftermath of billion-dollar bailouts and fines and ongoing reports of unethical and illegal conduct remain fresh.
Paralleling this investor distrust is a "new view" of the fiduciary standard in Washington. While the DOL efforts to modernize ERISA are a praiseworthy exception, a "new view" of fiduciary that is "Made in Washington" is taking hold in many quarters.
In this new view, the bedrock and indispensable fiduciary principle of loyalty is, in fact, very expendable. Statements from current and former regulators and policymakers make this abundantly clear: a true fiduciary standard is either unnecessary or, worse still, harmful to investors' health.
This new view, which clearly suggests true fiduciary duties must be largely eliminated to accommodate conflicted sales practices, is profoundly anti-fiduciary and deeply troubling. It questions, at the most fundamental level, the foundation of the life's work of tens of thousands of fiduciary advisors.
