Let me say right up front that I love this job. I don’t think there’s any beat on the planet that even begins to rival the financial services industry for sheer entertainment. As the SEC’s “request for information” comment period regarding the creation of a fiduciary standard for brokers drew to a close last week, a flood of comments were submitted. Many of them were noteworthy, and some not so much, which will provide fodder for many blogs to come. But I’d like to give a special shout out to my main men at the National Association of Insurance and Financial Advisors (NAIFA) for their ongoing efforts to keep me from getting bored.
For the record, I applaud the many fine advisors covered in Jamie Green’s July 5 AdvisorOne story, “SEC Gets an Earful From Advisors on Fiduciary Standard,” who support a fiduciary standard for brokers that is “no less stringent” than the ’40 Act for RIAs (as Dodd-Frank mandates), and decry the SEC’s thinly veiled attempts to pave the way for a watered-down broker version. Their comment letters and supporting information provides a unified cry for investor protection that, hopefully, the Commission won’t be able to ignore.
But yesterday my attention was stolen by a lesser-covered comment letter. To bolster its comments against a fiduciary standard for brokers, my good friends at NAIFA conducted a survey of 2,400 or so of its members and other “financial professionals” that found — wait for it — that 84% said that their “costs of doing business would increase” if the SEC imposed a “uniform fiduciary standard on broker-dealers and investment advisers.”
In case you missed it, the standard in question would require NAIFA “advisors” to put the interests of their clients first. Why that would cost more wasn’t addressed, except vaguely as “compliance costs.” (How anything could cost more than FINRA is a mystery to me.) In the release accompanying the survey results, NAIFA CEO Dr. Susan Waters said “NAIFA members protect the financial interests of American families throughout the country,” apparently she should have added: “unless it costs more.”
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In response to these curiously escalating costs, only 39% of NAIFA advisors said they would increase prices to clients, while 35% said they would “offer a more limited range of products.” Perhaps I’m missing something there, but that means 61% (or nearly 2 out of three) respondents wouldn’t raise client fees: doesn’t this undermine the whole “increased client costs” argument? And where’s the threat in insurance agents going back to focusing on insurance products?
According to NAIFA, the biggest threat posed by having to put clients’ interests first is that 46% of their “advisors” “would most likely shift their customer mix to higher-income clients.” As if. Now don’t get me wrong: I know that there are many dedicated advisors around the country who focus on serving the “middle market,” including the members of Garrett Planning Network. With that said, it’s been my observation of the advisory world that there’s a lot more to attracting “higher-income clients” than simply “shifting” one’s “customer mix.”