Why Arguments Like NAIFA’s Against Fiduciary Standard for Brokers May Backfire

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Have you ever heard someone talking, and thought: “Do you ever listen to yourself?” That’s how I’m feeling these days about much that’s being said and written by opponents of the fiduciary standard for brokers. It’s as if they either think people are really stupid and won’t understand, or they won’t care about what they are saying. Or maybe they’ve just gotten away with non-client-centered behavior for so long, they just really don’t believe anyone is going to make them act more responsibly.

This surprises me, because at the outset of the broker regulation debate, folks like SIFMA made their positions seem so reasonable, so client-oriented, that it took a team of lawyers to decipher what they were really saying (“We fully support a fiduciary standard for brokers but, of course, it would have to be tailored to the valuable services that brokers provide their clients,” yadda yadda). But as the discussion ground on through Congress and now at the SEC, their statements have become more shrill and much more transparent.

For one of many instances, Terry Headley, president of the National Association of Insurance and Financial Advisors (NAIFA), recently issued a statement that read, in part:

“NAIFA is concerned that the potential additional costs and increased potential liability for applying a "one size fits all' fiduciary standard of care to the broker-dealer business model could result in middle- and lower-market investors having less access to the account services and investment advice that are currently being delivered by registered representatives of broker-dealers.”

What is the public to make of this? The implication is clear: “Doing the right thing for our clients will cost more, and subject us to liability [presumably for not doing the right thing], and our businesses just can’t work if we have to do the right thing for people who aren’t wealthy.” Does NAIFA or anyone else really think this rationalization is going to resonate with the public, the media or many of their own members (who, in my experience, really do want to put their clients’ interests first)?

The only thing I can figure is that they believe the SEC is headed by a bunch of industry insiders who buy into a client-be-damned mentality and that nobody else is paying attention anyway.

But I can’t help but believe this time it really is different: that the public and the media have finally understood what a fiduciary duty is, and why it’s very important to retail investors. And if I’m right, these “we can’t do business if we have to put our clients’ interests first” arguments are destined to backfire—big time.

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