It would be fair to say that the government has a clear duty to protect its citizens from harm. At a minimum notify them of the problems. Terrorists, poor quality products, malpractice, false advertising, dirty restaurants, assaults, clean air and water, dangerous pharmaceuticals, airplane safety, and home fires. All reasonable and generally well cared for.
The government has not stopped with these. There other regulations that provide different values. Some of these are based on opinion as opposed to objective proof. Zoning bylaws, expropriation, taxation, carbon emissions, forestry management, industrial safety, and store hours seem to fit here. These govern behaviour based on preferences imposed by those who have the power to do so.
Lastly their is regulation that protects people from themselves. These seem parental as opposed to adult. Why can I not drive without a seat belt, or ride a bike without a helmet, or drink alcohol after 2:00 AM or coach a kids hockey team without a certification? These regulations seem to be unnecessary and can do harm.
People come to expect regulation to save them from foolish acts.
If I go to Home Depot and buy a toaster that is obviously poorly wired, but I like the $9.00 price tag, I deserve to be electrocuted. If the word spread, people might begin to look after themselves a little better.
Some time ago I wrote about traffic control in Drachten, The Netherlands. Traffic engineer Hans Monderman pioneered the idea of shared space. There are few traffic control features and it works because drivers and pedestrians must understand the space and what their role is within it. His vision is that traffic controls make people careless. They rely on the controls rather than their own skill. A bad habit.
Is it not the same with regulating financial advisors.
If licensed, should not the marketplace sort out the charlatans and the fools. Too much regulation makes people feel secure when there own skills are a necessary part of the planning process. If clients knew just a little more, the experience for them would be vastly improved.
Relying on regulation costs more and causes advisors to refuse to deal with many of the people who may need assistance. If people learned a little about the process and how they fit into the financial world over a long time, there would be fewer problems.
Clients of financial advisors, and people in general, need to know more and participate more in devising their plan. No one wins when clients know too little. Well, except the regulators I suppose.
My advice to advisors is do not deal with incompetent or people with unreasonable expectations. Too dangerous in a regulated world.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
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