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What the World Needs Now…Are Client Advocates

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A reader under the moniker “III Financial” posted the following response to my December 3 blog, Why Aren’t CFPs Always Subject to a Fiduciary Standard?, about CFPs acting as part-time fiduciaries.

I faced this dilemma when I worked with an insurance BD while a CFP from 2007 to 2011. For someone who believed in the CFP designation, and the value of acting as a fiduciary, the rules of the system prevent that from occurring. In my duties, I built financial plans for a fee (as a fiduciary), then I had to ‘change hats’ when an insurance product was needed for implementation. By law, an insurance agent is bound to act in the best interest of the insurance company. The way I reconciled it in my head is that I knew I was giving them the best advice for them (fiduciary) while still providing the insurance company with a new client. Until the rules of the game change, one cannot sell insurance and be a fiduciary simultaneously, which is a shame. Plenty of advisers who deal with insurance would love to say honestly that they can act as fiduciaries for their clients.” 

So would many advisors who deal with securities. But under the law, often times they can’t either. That’s also a shame.

What III Financial is talking about, of course, is the age-old distinction between “advice” and sales. Now before I get a flood of comments and/or emails, let me say again: there’s nothing wrong with sales or salespeople. As the cliché goes, some of my best friends are salespeople. Heck, my ex-wife is head of marketing for a mutual fund company. And in my many years as a journalist, I’ve often found that the advertising sales folks to be a lot more fun than the editorial staff (present IA and TA editors excepted, of course). 

What’s more, salespeople are important. That’s why, in many industries, they tend to make a lot more than those of us do the actual work (did I say that?). And the truth is they deserve it: they bring in the revenues that pay everyone’s salaries. They deserve it because they act as “advocates” for the company they work for, and convince clients/customers to buy their company’s products, or other companies’ products through their company—and not from some other company. 

Yet from a customer/client standpoint, there is a big difference between being “sold” and being “advised.” While salespeople are advocates for their firms and its products, advisers are “advocates” for their clients whose job it is to weigh the sales pitches from various service and product vendors, and to help their clients balance costs and value to make prudent choices.

In the complex and confusing financial services industry, retail consumers are in dire need of such advocates, who are paid directly by their clients and by no one else. [While independent registered reps may have some confusion about which camp they fall into, they needn’t: yes, they own their own businesses. But they are still registered representatives of their broker-dealer, which pays back to them a percentage of the cost of the products or services they sell.] 

This is exactly why, now more than ever, retail financial consumers need a profession of advisors who are clearly full-time advocates for them, and no one else. It’s why the CFP Board cannot fill this role as long as it continues to certify CFPs who are legally and economically unable to be full-time advocates for their clients.

As III Financial points out, the insurance industry may never achieve the status of client advocates: at present, they are actively lobbying against the right of their clients to hire RIAs to give them objective opinions about the products that agents are trying to sell them. But the securities industry seems to be moving toward fiduciary client advocate advisors: unfortunately, it looks like it will take a new professional organization to get there. 


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