Bob Veres recently posted an interesting—and curious—article titled “Give up the Fiduciary Fight” on November 17th on Financial Planning.com. As the title suggests, Bob makes a case that the current fight over a fiduciary standard for brokers is a “lost cause,” and that continuing to push the issue will only enable the brokerage industry to “use its enormous wealth to emasculate an important legal distinction.”
Yet (and this is curious part) he goes on to offer a well-reasoned (as far as it goes) three point plan for how fiduciary advisors can win this fight. While Bob claims “the profession is in danger of forgetting the big picture,” it seems to me that he may not be looking at a big enough picture: one in which both present and future “battles” can play an important role in ensuring that investors who want it, can get client-centered advice.
Veres is understandably concerned that the SEC and Congress currently are asking for “proof” that a fiduciary advisor provides a better cost-benefit relationship for consumers than a non-fiduciary wirehouse broker. However, financial history shows us that lawmakers and regulators are almost never in the vanguard of sweeping investor-oriented action. (Consider that the landmark 1933, 1934 and 1940 Acts took a market crash and a Great Depression to pass.) And those of us who were naïve enough to think otherwise in the wake of Dodd-Frank, were just that: Naïve.
As I’ve written before, to my mind, the most fitting historical example for the current situation is the initiative of Ron Rogé and the rest of the NAPFA board in the early 1990s, to persuade the New York financial press that “fee-only” was a more investor-oriented advisory relationship than commissions. At the time, NAPFA had about 400 members, and Ron initially got the lead on the project only because he lived near NYC. And yet by the end of the decade, after years of schmoozing reporters and editors by Ron and other board members including Chairman Bob Wacker, the brokerage industry caved and began offering the fee-compensated asset management services that are now the standard services of the industry.
NAPFA’s David vs. Goliath ability to change the entire retail financial services industry is probably the most striking example of what Veres is referring to when he writes: “The fight over the ‘fiduciary’ label is really just one more battle in a long war between professionals and sales agents.”
So let’s not be so quick to give up the current fight. The takeaway isn’t that fiduciary advocates should abandon the current broker standard fight: they should use the national stage it creates to generate as much PR as possible about the distinctions between broker standards and RIA standards—and why the advisor standard is much more investor oriented.