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July 25, 2011 at 06:11 AM
As a result of the financial meltdown of 2008, Congress felt the need for a “fiduciary standard” of care to remain in place under the terms of the Investment Advisers Act of 1940 (IAA). The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 brought on heavy debate—still ongoing as I write— as to whether the brokerage industry should also be held to this higher standard of conduct, since ultimately both are involved in managing OPM – “Other People’s Money.” That being said, I find it ironic that those same congressional officials are not held to a fiduciary standard themselves. Yet I strongly believe they should be, since they’re also responsible for managing OPM – and lots of it!
I believe the American public would benefit greatly if those in Congress were mandated to live by the five core principles of fiduciary advocacy put forth by The Committee for the Fiduciary Standard, which is seeking to keep the fiduciary standard under the IAA from being watered down by the possibility of a new fiduciary standard for only the brokerage industry.
Let’s see how these five principles would apply in the congressional setting:
Reason (Principle) #1: Put the client’s best interest first
Have you ever thought about the fact that every citizen has some form of representative in Congress acting on his or her behalf? (At least that’s the expectation.) So doesn’t that make us citizens collectively “clients” of that elected public official? And isn’t that official paid out of tax revenue collected from citizens? Lastly, doesn’t that congressman have the ability to vote on how tax revenues are actually managed?
Therefore, all congressional officials are actually acting as fiduciaries on behalf of the citizens, and should be required to put their client’s best interest first at all times. Some would argue, depending on whether they are Democrat or Republican, that each official should only represent their party’s best interest. I beg to differ; because once an official is elected, they are the representative of the whole electorate of their district or state and should act in the best interest of all their clients, not just their party.
Reason (Principle) #2: Act with prudence; that is with skill, care, diligence and the good judgment of a professional
Shouldn’t our elected officials be viewed as professionals? Certainly, the job they do is professional in nature, especially if they are required to be fiduciaries. Most of what I see in Congress today is more of a lack of prudence, skill, care, due diligence and good judgment, without regard to the clients they represent.
For example, why is it that our officials always wait till the last minute to get major legislation completed – e.g., the current debt ceiling issues, the past tax law extensions, Obamacare? Where was the prudence, skill, care, due diligence and good judgment that our congressional officials should have had to manage those situations long before the 11th hour of legislative termination? How many congressional officials actually read the entire Obamacare legislation before voting on it? Is that acting with prudence, care and due diligence for the benefit of all the citizens?
Reason (Principle) #3: Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts
Are fiduciary investment advisors allowed to mislead clients with regard to investing their assets in the stock market? No! Well, then, shouldn’t it be inappropriate for our congressional officials to mislead the American citizens
in any way? For example, in a previous article for AdvisorOne called “Wealth & Taxes,” I outlined the current administration’s continuously advertised “perception” that the wealthy are only those individuals making more than $250,000/year. In my article, I illustrate that the IRS records of tax revenue clearly show that 25% of American citizens pay 86% of all the tax revenue. The income threshold for that 25% of Americans actually starts at only $66,000/year for married households.
