While I am not affected by it, I have been following with interest the United States Department of Labour’s efforts to demand a fiduciary standard for advisors providing advice regarding retirement savings.
As with most government action, the general case of need is presented without any idea of whether the specific cases are a large or tiny fraction of the entire field. In this case, I am unable to see the purpose other than to derail advisors’ commission income. The politics of envy, I suppose. The legislation is aimed at preventing such income seemingly because someone thinks advisors provide no benefit. At least according to Senator Warren and others who have not yet thought it through.
Senator Warren was particularly offensive recently when there was a move to defer the start of the rule. Financial-Planning.com reported:
The Trump administration’s move “gave financial advisers with conflicts of interest two extra months to cheat Americans saving for their retirement ― a delay that could cost hardworking Americans billions of dollars in lost savings,” says Sen. Elizabeth Warren (D-Mass.) in an emailed statement.
Hyperbole goes a long way in politics and works so long as voters are uninformed. Evidence is in shorter supply.
The legislation would make some sense if it was possible to determine a conflict free way for advisors and clients to relate. Actually all commercial transactions have an element of conflict.
Since fees paid for advice are an issue for the poorly informed, and we can assume the advisors will not work for free, it seems unlikely that the ideal, conflict free, state proposed by the government will evolve.
The legislation implicitly presupposes advisors are not worth what they are paid. I am sure there are cases where that is true. Yet, it is not true all the time within each advisor client relationship. If an advisor provides little value this year and great value next year, how are we to assess what the fee should be?
Who even claims to know what value advisors provide? There are many soft values that clients and certainly bureaucrats forget or never knew. Who provides encouragement to save? The Department of Labour? No. Senator Warren? No. In fact no one other than the people working with the person. Advisors supply a conscience, emotional smoothing, encouragement and methods.
Assessing the individual’s ability to participate in the formation of their own plan is troublesome. Most cannot. I cannot see how anyone could be a fiduciary to someone who does not understand the process and fails to define their own goals. Perhaps the clients should be regulated so they must operate in their own best interest too.
The poorly informed consumer is the source of much of the political fuel in this fire. Advisors can take some responsibility for that. Most have spent too little time educating and informing their clients. Is it then any wonder they have been victimized by those with another agenda? That group imagines people have been overcharged for incomplete or useless advice?
I think the whole advice thing is poorly handled, but consumers who were more aware would easily fix that. The solution proposed will further hide the problems that exist and make them harder to solve.
All this in homage to John Sowell’s well crafted maxim.
There is NOTHING so bad in society that politics cannot make it worse.
Some consumers are in the unfortunate position of requiring more knowledge just to appreciate how little they know. Advisors, at least those who are willing to continue serving the unknowing, are the only real hope for these people.
You cannot logically be a fiduciary to anyone who cannot or does not give you complete information, or who has contradictory or no goals. Don’t try.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772