Clark at Large: The Dog That Didn't Bark

The following exchange comes from “Silver Blaze” by Sir Arthur Conan Doyle, between Sherlock Holmes and Inspector Gregory: “Is there any other point to which you would wish to draw my attention?” Holmes: “ To the curious incident of the dog in the night-time.” Gregory: “ The dog did nothing in the night-time.” Holmes: “That was the curious incident.”

Sometimes what isn’t articulated is more important than what is. (In the story, the dog guarding the barn didn’t bark because he knew the horse thief, greatly reducing this list of suspects.) In the case of then-NAPFA chair Diahann Lassus’s testimony before the House Committee on Financial Services, what she didn’t say is both curious, and in my view, far more informative about how the Financial Planning Coalition is going to use whatever clout it has.

As you may know, the Coalition was formed about a year ago by the FPA, the CFP Board, and NAPFA to discuss a more formal development of the financial planning profession. “We started talking about what all three groups could support,” Lassus, who as past chair continues to represent NAPFA on the Coalition through the end of the year, recently told me. “What we came up with was a fiduciary standard for all financial planners, and the need for financial planning to be regulated as a profession.”

So far, so good. When it comes to fiduciary duties, as with most things, the devil is in the details, but having the Big Three planning organizations talking to each other–and finding some common ground–can only be a step in the right direction. Apparently, the Coalition hadn’t gotten much further in its deliberations when the Obama Administration dropped its bombshell white paper, calling for the sweeping reregulation of the financial services industry, including a “fiduciary duty” for those folks who deliver financial advice to the public, namely brokers and RIAs.

That’s when things began to get curious. Keep in mind what we’re talking about here is a Presidential call–with broad public support–for a radical realignment of the financial services industry. What’s more, it contains a specific directive to correct what’s widely regarded by professional financial planners to be the most onerous mistake in the Investment Advisers Act of 1940: the exemption which lessens the duty of care owed to clients by stockbrokers engaged in making sales.

A Level Playing Field

This is a once-in-a-lifetime opportunity to force brokers to play by the same rules as professional financial planners. While it might not be a panacea for all that’s wrong with the industry, if done right–by requiring a genuine fiduciary duty of everyone who gives financial advice to the public–it’s certainly a mega-step in the right direction.

Of course, the brokerage business, which at least believes it has billions at stake in the sale of financial products to the public, isn’t taking this perceived threat passively. Its current strategy (see my September column), is to seemingly agree with the principle of a fiduciary standard, while working both overtly and covertly to water down any such legislation/regulation (with exemptions and loopholes) so that big firms can go on with the business as usual of selling financial products under the guise of advice.

So what might we expect from the unified representatives of the long-suffering financial planning profession when presented with this unprecedented opportunity? Perhaps a strategy assessment that since a fiduciary duty was specifically mentioned by the Administration, it’s the battle currently being fought, and therefore, the one that can be won first? Isn’t it reasonable to expect our profession’s leaders to focus their efforts on attaining the half-a-loaf that’s being so tantalizingly dangled before them, and then using the momentum of that victory to push for their second goal of separate regulation?

But no. Instead, in July the Coalition issued a “Statement of Understanding” stating that as Congress undertakes regulatory reform, it “will collaborate to achieve” four objectives: That financial planning is delivered with fiduciary accountability; that planners are “specifically” regulated; and that the public understands the benefits of, and can identify, a true financial planner. That’s right: the ol’ stick-to-our-message ploy, even when it’s the answer to a question no one is currently asking.