The world would be a much better place if fiduciary was the law of the land as much as the standard by which financial advisors and the financial industry were judged. Although there are objections by product companies, by no means should the Labor Department drop its fiduciary rule project.
Two Issues That Require Reframing
Opponents to the fiduciary rule cherry-pick problematic areas for the brokerage community, arguing that the rule would be unfair to advisors and salespeople who sell the products that big companies make. That should not be the issue here. The issue should be, how can consumers be best served? That's what a fiduciary standard does, requiring advisors to place clients' interests ahead of their own.
Additionally, although the fiduciary standard is clearly a consumer issue, it is frequently presented as an issue that divides advisors. But there's an elephant hiding in the room, as pink as can be. Not to mention a naked emperor always dressed in new clothes. Both the emperor and the elephant are the financial services industry, the product companies, with the resources to rival any industry (and most countries) and to dominate the media of financial advice.
Why would financial institutions not want their advisors to be fiduciaries for their consumers? Because they themselves are not fiduciaries. Putting their own interests ahead of consumers works well for their profits, they think. It is a terrible system for consumers, however, and it's time for the financial world to do the right thing for society by putting the interests of consumers first.
Three Marks of a Fiduciary Financial Advisor
Over the past 50 years, professional organizations have developed the following three professional characteristics of a fiduciary financial advisor:
- Relationship-based listening skills of life planning: Through authenticity, empathy and inspiration, these deliver the trust to financial relationships that enables clients to articulate and then accomplish their most powerful, purpose-driven lives.
- Comprehensive financial planning: This addresses all financial aspects of a client's life, as opposed to single-focused product solutions.
- Fee-only advice: This allows compensation entirely separate from product sales and revenues, thus minimizing conflicts of interest.
Advisor Qualifications for a Fiduciary Standard
You can occasionally find a fiduciary advisor who has none of the following qualifications, but it is rare. Two out of the three qualifications will often produce a fiduciary, but the gold standard would be a combination of all three:
- Certified Financial Planner designation
- Registered Life Planner designation
- For fee-only advice, the professional associations:
- The National Association of Personal Financial Advisors
- Garrett Planning Network
- The Alliance of Comprehensive Planners
- XY Planning Network
Some suggest that the fiduciary rule would rob consumers of their choice of preferred financial advisor. But why would a consumer, offered the choice, ever want less than these three marks of a fiduciary?
Comprehensive fiduciary relationships across the industry will bring trust and professionalism to financial services and a population of consumers filled with entrepreneurial energy and confidence that the money world is working for them.
The best-interest standard promoted by product companies and their sales organizations isn't fiduciary. It does not ensure that the clients' interests come first; rather, a brokerage firm's fiduciary obligation is to its shareholders. And rather than a simple fee from their client, these firms receive not only commissions but also many other lines of revenue derived from their product transactions.
Moreover, an advisor's compensation is often tied not to the consumer's best interest, but to quotas and sales contests. Although disclosure may be required, how many consumers read or understand the implications of disclosure documentation?
Advisors held to the fiduciary standard provide a significantly higher level of care. It would be much simpler and better for all concerned if there was just one financial advice standard, a fiduciary standard of care, rather than the 770-page Regulation Best Interest.
