August 6, 2010
I sell financial products for a commission (a suitability standard), I provide investment management for a fee (based on a percentage of assets) and I am a practitioner of comprehensive financial planning for a flat fee -- asset-based investment management and comprehensive planning are done under a fiduciary standard.
Consumers have wide-ranging needs and resources that require different levels of expertise to address. Therefore, while setting the bar higher for the delivery of all financial products and services is a worthwhile goal, it may have the unintended consequence of reducing access of some professionals and consumers to financial transactions that, ultimately, provide important benefits. I support regulatory reform that raises the bar higher, but does not materially reduce such access.
At the same time, I believe that it is in the interest of the consumer to have a clearer distinction between their options, in terms of the people they have helping them, in the financial marketplace. I worked hard to earn the designations, licenses and expertise to be able to legitimately offer my services as a Financial Planner and/or Financial Advisor. Yet the consumer will often be confronted by somebody with nothing more than a State insurance license (that can be obtained by an 18-year old less than 2 months out of high school) presenting himself as a Financial Advisor/Planner, suggesting an equivalent amount of knowledge and expert advice. If advice is only incidental to the consumer's receipt of financial services, than the person being paid is not an advisor, nor should he ever be allowed to present himself as such. Harm is experienced by the consumer when sales consultants publicly suggest a level of professional ability that does not match their individual training or certification. Think of a CPR-certified lifeguard calling himself a heart surgeon.
Consumers understand the difference in expertise between a first-responder like a lifeguard who in licensed only in CPR and a MD who is licensed to perform cardiac surgury. In the marketplace for financial services, however, the distinctions (in the mind of the consumer) between highly qualified and credentialed advisors/planners and the salespeople/consultants who only sell commissionable products is very difficult to discern. Reform should make the distinction much clearer and, in so doing, incent the financial workforce to higher levels of designated expertise while educating the consumer as to the limitations of their current "advisor".
The debate of fiduciary vs. suitability oftens becomes a dogmatic contest in who is more-ethical-than-thou. Even a full, fee-only fiduciary standard will not dissuade unethical operators from seeking to harm the consumer -- Bernie Madoff was a fee-only advisor, after all. The SEC should not allow such posturing to inform the debate, but rather focus on making advice more central (rather than incidental) to consumer decisions, protecting access to financial products for those with median or lower incomes, and more clearly designating well-credentialed experts (true advisors/planners) from sales consultants who, while providing important services, do not accept higher standards being imposed upon them.
The above comments are my own and are based entirely on my own experience as a financial professional. They do not necessarily reflect the views of any other person or organization that I may or may not represent.