Show Me the Money: Taking the Fiduciary Debate to the Bottom Line

I’ve had a couple of notable comments to my July 14 blog: “Is the Fiduciary Standard Really a Political Issue?”

The strength of the first remark comes mainly from the fact that the author, Elliot Weir of III Financial, agrees with me: “Well said, Bob. Too many non-political issues have been sucked up into the vortex of party ideology!”

The second comment is a much lengthier viewpoint emailed to me by an advisor who wished to remain anonymous. While he disagrees with me on virtually every point, he raises a number of interesting issues that are worthy of discussion.

Here are the highlights:

Him: “Fiduciary is without a doubt political. I don’t know what a ‘political issue’ is, but I’ll define it as any issue that the left wants government to solve, and the right knows the market solves better… at least those are the talking points. Starting with the assumption there is a problem that the market isn’t solving today in the most efficient way is, by the above definition, political.”

Me: As I’ve written before, while it doesn’t mean one is “right,” I do believe the thinness of critics’ arguments is an indication that one is on the right track. In this case, we’re looking at the old “free markets” defense. Heck, even Adam Smith believed in some regulation, famously saying; “Above all, regulation should be sensible.”

I think most people would agree that the least regulation is best, when it’s sensible not to regulate. But, I also think our society has pretty clear guidelines about when it’s more sensible to regulate.

One of those times is when professional advice is involved.

Higher Standard

We hold professionals to a higher standard because their knowledge and experience puts them at a distinct advantage over their clients (or patients), in areas that can have a profound impact on their lives.

Professionals are prohibited from providing “advice” for their own gain, at the expense of their clients’ well-being. And the reason this makes sense is that “free markets” don’t work well in areas where one party has a substantial informational advantage over the other party.

The issue of professional responsibility is clearly not a political issue. Nor, I think, is the notion that financial advice can play just as large a roll in people’s lives and happiness as does our health or our tax returns. Consequently, it is not an area in which “free market” conditions exist.

Perhaps the real problem here is that we don’t have regulations requiring that both professional investment/financial advisers and non-professional financial advisors to clearly communicate to their clients which category they belong in.

Him: While I don’t believe entirely in unintended consequences, most who support a fiduciary duty are very aware of the damage they are doing to the accessibility of personal financial advice.”