You don’t need much of a crystal ball to realize that in the not-too-distant future the fiduciary standard will become the standard of the insurance and financial industry. There is simply no common sense argument that a person who entrusts another with their finances should not be assured that the person with whom they are dealing has their best interests at heart – first and foremost.
Those who do not recognize that this change has a lot of momentum behind it already will be left in the dust, and possibly find themselves out of business. To believe that retail standards for a broker-dealer should be different than for a financial advisor, or that an insurance professional should somehow have a lower level of responsibility to the client than another financial professional, stems from arguments that are either self-serving or misinformed. Moreover, the source of funds issue is far from being tabled and which will also, sooner than later, require insurance professionals to be securities licensed when moving funds from security products to insurance products, and that too will require a fiduciary standard, e.g., becoming an RIA or IAR.
From an industry perspective, introducing a broad based fiduciary requirement will do nothing but elevate our business that currently, in the eyes of the public, is not well thought of. Our data shows that 73 percent of people between the ages of 45–80 do not have trust in financial professionals or the financial industry as a whole. This is a shockingly high number that is most distressing to anyone who takes our industry seriously as a service to help people do better, rather than as a paycheck coming at the end of the month.
Adapt to change
Financial professionals and insurance agents who can adapt to the change in the compliance environment will have to retool many aspects of their business model: how they market, how they sell, how and what they communicate to clients. While many professionals would claim today that they have a fiduciary mindset or thought process, I would submit that they are living in a world of denial. Sure, they are trying to do the best for the client, but that’s not what a fiduciary is. A fiduciary puts the client first, no matter what, and does not have any product or strategic agenda other than to help fulfill the client’s needs and goals and do so, even if it means sending that client to see a different advisor. Anyone who has a vested interest in specific products, such as fixed indexed annuities, may think they are treating their clients at the fiduciary standard but, if they looked closely in the mirror, they will see that they are, for the most part, really just trying to sell an annuity. Not that they would do anything intentionally to hurt a client, but when you’re biased toward a certain product your so-called fiduciary standard really has no validity.
At the end of the day, while an overhaul and requirement of fiduciary standard in the short run will drive some professionals out of the business, and drive others into change that may be uncomfortable, in the long run adopting the fiduciary standard will go far in revitalizing the poor public perception of our business, and with that revitalization, produce more clients and a superior business model.
Tomorrow, Todd Greider on why a fiduciary won’t change anything.