Some independent advisors undoubtedly are following with interest the current debate between the Department of Labor and the securities industry over a fiduciary standard for IRA advisors. If you’re not, you should—it’s providing a sneak preview (a pre-season game, if you will) of the arguments that will be made whenever the SEC gets around to issuing its own fiduciary standard for retail brokers.
An illuminating example of this was reported on AdvisorOne August 31 by John Sullivan in “Fiduciary Backers Renew Critique of Oliver Wyman Study,” which detailed Wall Street’s latest attempt to show why brokers acting in pension investors’ best interest would drive up costs, reduce access to advice, contribute to world hunger, climate change and cause widespread impotence (at least among brokers).
But despite the seemingly skewed findings of the Wyman Study—including investor cost increases of up to 195%, and preventing 7.2 million Americans from having access to IRAs—it and the ensuing debate over the Study’s veracity, touch on the central issue of retail advisory regulation: Consumer protection vs. freedom of choice. And at the center of this perennial conundrum is the cost of advice.
Given our current sound-bite culture, I suppose we really can’t blame the financial industry for its dogged focus on consumer costs (although I still do): the overly simple fact is that on the surface, at least, getting “free” advice is always cheaper than paying for advice. But what neither side of the fiduciary debate seems to be interested in talking about is why. I guess it’s also not fair to criticize fiduciary advocates for failing to address this point: It involves exactly the kind of complex explanation that causes the modern consumer’s (or voter’s) eyes to glaze over and change the channel back to “Survivor.”