August 23, 2010
I am a proponent of the fiduciary standard for those who call themselves financial advisers or financial consultants or whatever title implies that advice is taking place as opposed to product sales. It would seem to me that if those who oppose the extension of the fiduciary standard had to use sales in their title and had to drop the use of adviser or consultant, this would fix the problem. For example, the titles Insurance Sales Agent or Security Sales Representative clarify that selling for the company comes first, then the clients' interests next.
The titles Adviser or Consultant imply that the person holding the title could suggest any appropriate course of action to meet a client's needs (or even make no suggestion at all if the client's financial affairs were in good order) yet when an adviser works for a company with proprietary products or limited offerings, the whole array of options is NOT available. The public does not understand this distinction.
Letting those advisers/consultants who really sell products call themselves advisers or consultants is like letting the fox into the hen house dressed up as a rooster.
The situation we have now in the financial arena would be similar to calling used car salespeople transportation advisers. Doesn't this sound like the adviser is going to assess the person's transportation needs and get him/her into the best mode of transportation possible, including public transportation, leasing, buying new or buying used? This is not the case though. The used car salesperson is selling used cars and the public knows this. Even so, laws have been made to deal with unscrupulous sales practices in the used car industry.
When it comes to personal finances, the public knows generally to beware but many unscrupulous financial sales people have very polished sales skills that can be mistakenly interpreted as competency, honesty, and caring for the client's well-being. Adding to that, the respected title of Adviser or Consultant automatically adds credibility, creating the perfect opportunity to oversell. In comparison to the used car business, the stakes are much higher in the financial industry since bigger sums of money can be involved with a devastating impact on the client's future. Even though laws are in place to deal with this sort of abuse, the real crux of the problem is that they are not directed towards fiduciary responsibility. Suitability is less stringent than the fiduciary standard. In many cases it could be argued that a product is suitable but it may not be in the client's best interest. In addition, even though clients may be given literature about products as disclosures, the required information is cumbersome, lengthy and nonsensical to the average person.
The Fiduciary Standard may not fit all providers of financial services/products. For those who are opposed to conducting their business by it, I would suggest that there are three means of dealing with this. The first is to require that they use Sales in their titles and second, prohibit their use of the titles Adviser or Consultant or any other term that would imply that advice is given purely with the clients' interests first and without conflicts of interest.
Finally, and perhaps most important is that information given out by these companies should also include a statement that the salesperson's first obligation is to the company for whom they work, then to the client and that an alternative does exist to work with advisers who conduct business by the Fiduciary Standard (defined). Then the buyer is informed and can decide if he/she should beware.