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Fiduciary September just concluded. To generate further awareness, my organization, the Institute for the Fiduciary Standard, produced eight panels with 22 speakers on topics that included the proposed DOL fiduciary rule and the birth of fee-only planning in NAPFA’s early years.
Fiduciary advice is based on law and is an expression of the acceptable norms in our society. But a recent Wall Street Journal piece by Matthew Hennessey discussed decades of diminishing societal norms to explain today’s absence of restraints and excess of uncivil conduct and speech.
Hennesey noted that the erosion of norms “goes far beyond politics.” “Social media is filled with videos of breakdowns, beatdowns and freakouts …. only in a society without guardrails does it feel right to film a crime in progress for public titillation” rather than aiding the person in need.
The erosion of norms is also about doing things we know to be wrong or making false or obfuscating statements. On the political level, it’s now widely accepted that the question of impeachment and even stating simple truths is no longer a matter of policy or political differences. They are now sharp partisan issues that reflect major differences in, for example, what constitutes an impeachable offense. The result is that each side has its own “facts.”
In financial advice, “no guardrails” translates to obfuscating what fiduciary means, ignoring legal precedents, conflating sales transactions with trusted fiduciary advice, and redefining what is a conflict of interest.
One of our Fiduciary September panels discussed the RIA profession’s view of fiduciary care. Or, as Scott MacKillop, founder and CEO of First Ascent Asset Management, said, “the very heart of what we do – our foundational principles.”
Financial planners Cheryl Holland, Clark Blackman and James Lee spoke on the panel.
Lee, a financial planner, described what fiduciary advice is to him, “This is a helping profession, and every day we have the privilege of helping clients with the most important decisions that they make surrounding money.”
Holland added, “I try to think about every conversation, decision process, and long-term plan with a client as if I am standing in their shoes.”
Blackman noted, “I think about fiduciary like treating your client like your grandmother. You wouldn’t do anything in that relationship that wasn’t absolutely the right thing to do. It’s the ’golden rule’”.
MacKillop also asked about the differences between broker-dealers and independent RIAs.
Blackman, whose firm, Alpha Wealth Strategies, a Fiduciary Institute Real Fiduciary™ advisor, noted, “I have absolutely no beef with brokers providing brokerage services to their customers as long as they don’t present themselves as advisors.”
Lee may have spoken for all the speakers when he added, “There is a place for the brokerage business and a separate place for fiduciary advice. They should be distinct and clear to consumers, but unfortunately that is not the case today.”
Holland made three points that differentiate her firm, Abacus Planning Group, also a Real Fiduciary™ advisor, from brokerage firms.
“First, we never represent or are compensated to sell a product. Period. Second, we think of our clients holistically. Third, we are direct and honest about our conflicts of interest.”
Holland’s third point is often underappreciated by independent RIAs. BDs’ lack of transparency, clarity and simplicity in describing fees, services and conflicts is a painful consumer sore point. That is what the research tells us.
Consider the frustrating experience of an investor who wants to know their fees and costs. Ameriprise used 15 pages to describe how the firm and its representatives are compensated. Among several documents, Merrill Lynch used 34 pages to describe compensation.
Broker-dealers hold themselves out as ”trusted advisors,” while their industry trade associations argue in legal proceedings they only offer “retirement assistance, products, and services,” or, “commercial sales relationships,” according to reports by the Consumer Federation of America (CFA).
BDs feature snappy websites and soothing words that attempt to turn clever sales pitches into fiduciary advice. But their business practices, sales cultures and compensation methods are formidable obstacles to what consumers want and deserve.
What’s more formidable, though, as Holland suggested, is something that broker-dealer reps can’t do. They can’t provide clarity and honesty in words and deeds.
Fiduciary duties are interpreted and applied within societal norms. Today’s “no guardrails” world illustrates why established precedents and principles have been turned upside down and brokerage industry misinformation holds so much sway.
The good news? This is a temporary affliction. Guardrails will reemerge and consumer demand for real fiduciary advice and care will prevail.
Knut A. Rostad, MBA, is the co-founder and president of the Institute for the Fiduciary Standard, a nonprofit formed in 2011 to advance the fiduciary standard through research, education and advocacy.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Broker-dealers hold themselves out as ”trusted advisors,” while their industry trade associations argue in legal proceedings they only offer “retirement assistance, products, and services,” or, “commercial sales relationships,” according to 