August 25, 2010
When contemplating new regulations or standards of expectation, please consider carefully the cost / benefit tradeoff of these new standards.
The vast majority of financial professionals are working hard to improve the financial condition and outcomes of their clients, while earning a living for themselves. It has always been a challenge to do this well, and even more so in these recent turbulent economic times.
Most people are better off with the benefit of professional advice when choosing financial products. Occasionally, even with the best of intentions, the advice will produce an adverse outcome.
While we need rules that make it possible to deter, catch and punish those who set out to take undue advantage of others, if these rules make it substantially more difficult or expensive to provide the services being regulated, the end result can be fewer, higher cost services, without a commensurate improvement in quality.
In my opinion, the current standard of "suitability" is sufficient and well established guidance for what represents appropriate behavior. Increasing the standard across the board to "fiduciary duty" will not deter a Bernie Madoff, but will increase uncertainty as we figure out through the court system what this means, and be very likely to increase costs and make it more difficult for a large range of financial professionals and organizations to provide financial services.
Trying to treat all financial professionals like fee-for-service planners does not seem practical given the current industry structure. It might provide better service to customers if all financial products were provided on a fee-for-service basis, but that is a different discussion, and likely debatable as well.