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Industry Spotlight > Broker Dealers

Real World Blues

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Last week offered some good news and some bad news for the proponents of a fiduciary duty for all financial advisors. First, the good news: As the financial reform Conference Committee worked through reconciling the House and Senate versions of the bill, Chair Barney Frank continued his support for a fiduciary standard for brokers, stating that it was “essential to protecting investors.” Strong words, indeed, from a man who’s in a very influential position.

Yet just as Chairman Frank giveth, he also taketh away. When he went on to address concerns of the insurance lobby over the ability to sell proprietary products, he reassured them that the bill would allow brokers to work within the limited product lines of the companies they work for, and wouldn’t force them to go outside of those products. So, just as with the CFP Board’s “fiduciary standard,” and FINRA’s position on broker reregulation, Rep. Frank and the House version of reform sees no problem with advising retail clients to buy in-house proprietary products. As CFP Board Chair Marilyn Capelli Dimitroff explained to me last fall: “Of course, we have to work within the real world…”

Now, to my mind, there are a few phrases that people use to start off conversations after which you just know nothing good is likely to follow: “In the richest country in the world…”, and “Honey, we need to talk…”, come immediately to mind. “We have to consider the real world…” is certainly another intro destined for that list. In my interpretation, it translates into something like: “We’re all for the clients’ welfare and that touchy-feely stuff, but brokers/agents/financial planners have to make a living, and we sure don’t want to do anything to interrupt business as usual.”

Particularly when that business-as-usual is the most lucrative product that can be sold.

Now, before I get a gazillion e-mails extolling the virtues and purity of proprietary products, let me say that I’m sure there are some, somewhere that are right for a particular client, in a particular circumstance. But my question is this: If a proprietary product is in the best interest of the client, why all the wailing and gnashing of teeth over subjecting them a fiduciary standard? Why is there a specific exemption for proprietary products in the House bill and the CFP Board standards of professional conduct?

Could it be that in the real world, very few proprietary “sales” would pass the client-oriented smell test?


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