I have to admit to being pleasantly surprised after reading “Dalbar Puts a Sellers’ Exemption to Fiduciary Rule on DOL’s Desk” written by Nick Thornton and posted on ThinkAdvisor in early August. (Yes, I’ve gotten a bit behind in my reading this summer.)
Dalbar is a financial industry research and business practices consulting firm that, along with its founder and CEO Lou Harvey, has been prominent in the industry as long as I can remember. (Its website says that the company was founded 1976, which pre-dates even my industry tenure.)
As might be expected from a company that works almost exclusively for brokerage firms and other large financial businesses, over the years, I’ve found Dalbar and Harvey to be somewhat of an advocate of the financial-services industry (not that there’s anything wrong with that.) So, I wasn’t prepared to find some of Harvey’s fiduciary proposals quite reasonable.
As the head of Dalbar, Lou proposes improving the currently embattled DOL fiduciary rules by adding a “seller’s exemption.”
Now, before you get all worked up, I’m well aware that the “seller’s exemption” to the Investment Advisers Act of 1940 has led to many of the problems that the DOL and other are currently trying to correct. But Harvey is aware of this, too.
As Thornton quotes him: “Much of the problems the fiduciary rule attempts to address have their origins with the introduction of dual registration,” said Harvey.
“It led to a lot of false and misleading activity. A registered advisor could switch hats at will and become a broker-seller. They found it was a lot easier to sell a product with the advisor hat on… … the brokerage industry resisted calls to enforce a firewall between selling and advisory marketing practices,” the Dalbar chief explained.
To solve this problem, Harvey “would prohibit brokers and insurance agents from marketing themselves as fiduciaries, stating “it is essential that retirement investors understand the difference between sellers of investment products and fiduciaries.”
You can see why this got my attention.
Harvey went on to say: “This clarity begins with eliminating overlapping and ambiguous titles. Retirement investors must know the distinction between the recommendation of an advice professional and the proposal of a sales professional.”
And just how would this distinction be made clear?
Harvey proposes that “under no circumstances shall the term ‘adviser’ or other terms with similar meaning be used to describe a sales professional.”
I know, there’s nothing new about this. Many other fiduciary advocates and I have been calling for advisory title clarity for many years. It is, however, rather novel coming from the industry side of the table.
And Harvey goes further, suggesting disclosures that “would require the words ‘Sales Professional’ to be displayed on page one in a font size and color that makes it the most prominent text in the proposal.”
As I said, there’s much to like in Harvey’s proposals.
But as we all know, there’s no place where “the devil is in the details” is truer than in securities regulation. One can imagine how Harvey’s proposals could be “tweaked” just enough to eliminate any investor understanding and/or benefit.
For instance, simply replacing “financial advisor” with “Financial Consultant” or “Financial Professional,” and we’re back to square one on the investor confusion scale.
As I’ve written before, I strongly suspect that the only workable way to end investor confusion over whether they are being “sold” or “advised” would to clearly separate firms that “sell” securities and investments, from those providing “investment advice.”
That way investors would have a clear choice about the services they receive.