“Kid, to pull off the big con, you don’t only have to take the mark, you have to keep on takin’ ‘em, so that they don’t even know they’ve been taken.”
—Harry Gondorff, in “The Sting”
Normally, I wouldn’t respond to comments like J.P. posted to my last blog. Not to put too fine a point on it, but they’re mostly the same old tired rationalizations for why “Doing what’s best for the client” isn’t really what’s best for the client. And like most of these defenses, J.P. starts off with the standard “[clients] don't really care how we are paid, or whether or not a particular product is proprietary,” and concludes with what is apparently considered the haymaker: “Because every business model carries with it an inherent conflict of interest.”
Today, however, with the SEC in the process of determining whether—and how—brokers should be held to a fiduciary standard, these old arguments take on a renewed significance. So at the risk of repeating things I’ve written many times over the past years, the flaws in these “seemingly” rational arguments warrant further illumination.
While J.P. writes “..we are all missing the point…,” it seems to me that it’s J.P. and all those who believe (or at least make the same arguments) as he does who are off the mark. Of course, studies show that financial consumers don’t care about advisory compensation or whether a particular product is in-house or third-party: That’s because they don’t understand the significance of those facts.