A Modest Proposal for a New Warning Label for All Non-Fiduciary Advice-Givers

It’s recently occurred to me that the current debate over a fiduciary standard for financial advisors has been focused on only half of the issue: Advisor behavior. The other side to this gilded coin is the behavior of the clients. I’m not talking here about “disclosure” or “investor education.” Disclosure is a red herring that’s clearly failed because financial consumers predictably don’t know enough to understand the implications of what they are told; and anyone who thinks they can know enough to not need a financial advisor in the modern world deserves exactly what they’ll end up with–a lot less than they should have.

But this does bring us to the real point: The vast majority of financial consumers have shown time and again that they don’t value financial advice enough to pay for it. So they get their advice “for free” from a broker or agent who is getting paid (one way or another) by the sellers of the financial products they recommend. The financial services industry then contributes to this delusion by spending billions telling people how great this free “advice” is. Sooner or later, in the immortal words of Claude Raines, we’re all “shocked, shocked” to find out that some of this “advice” wasn’t in the clients’ best interest. Duh!

It’s this pervasive belief in our society–that we can get something of value for free–that underlies the “problems” with financial advice that Washington is wrestling with. (We have the same problem with our news media: we all agree that democracy depends on “the people” getting accurate information, yet we expect to get our news for free on TV or radio or for a small fraction of its real cost in newspapers or cable.) This, of course, opens the door for the SIFMA and FINRA free-market argument: If that’s what people want–and they clearly do–who are we to tell them that they can’t have it?

I have to admit, it’s a persuasive argument, and one that most professions are wrestling with these days: Turbo Tax, online wills and contracts, alternative medicine and herbal healers all are attracting great demand, and caveat emptor on the folks that use them. What’s the answer? Should we actually force people to pay directly for fiduciary financial advice?