A Different Take on the Uniform Fiduciary Standard Discussion

by | Mar 31, 2015 | News

We frequently blog here about what a fiduciary is and why that’s crucial information for investors to understand. So far in 2015, this is a topic that’s also received substantial media attention. Whether it’s been President Obama or SEC Chairwoman Mary Jo White, the fiduciary standard has probably received more attention this year than in previous years combined. This is great news!

Much of the discussion has been regarding the creation of a uniform fiduciary standard for all brokers and investments advisers. Here at Mullooly Asset Management, we’re fee-only investment advisers. We already have a fiduciary obligation to our clients, meaning that we must put our clients’ interests ahead of our own at all times. Many in the industry claim to offer advice, but are really brokers or salespeople recommending products or insurance.

Adviser and salesperson don’t sound similar at all, but a lot of obfuscation has taken place over time. That’s where the issue being discussed by Mary Jo White and President Obama stems from. In general, salespeople in the financial services industry haven’t referred to themselves as such in decades. Many hold themselves out to be advisers, consultants, planners, etc., leaving investors to wonder whether they’re being given true advice or a sales pitch. The question has become: should the SEC create a uniform fiduciary standard for all brokers and investment advisers? A lot of people seem to think doing so would abate the confusion investors struggle with when seeking financial advice.

I’ve read plenty of opinions on this important topic, but Michael Kitces presented one of the most interesting thoughts. Michael doesn’t think there should be a uniform fiduciary standard for all brokers and investment advisers. He believes it would be much more logical for the SEC to simply re-separate advisors and salespeople. Registered investment advisers would be permitted to hold themselves out as such, and brokers would be identified as salespeople. A clear line would be drawn between these two professions, and investors would be allowed to choose which they prefer to do business with.

Michael constructed an powerful analogy to explain why a change of this nature would be beneficial over a uniform fiduciary standard:

“Imagine, for a moment, that butcher shops began to rebrand themselves as “diet centers”, where the butcher was called the “lead dietician” but really only ever recommended the meat for sale in the butcher shop… and suddenly, there was concern that consumers were “trusting” the advice of their butchers too much, and buying (and eating) more red meat than was healthy, failing to recognize that the butcher’s “advice” was really just about selling the meat in his shop (his products) and not necessarily the same as the advice of a bona fide nutritionist.

…Both advisors and salespeople serve an important function in society – sometimes, we really do just want to buy a cut of meat and need someone to take our order – and the solution when the distinction gets fuzzy between advisors and salespeople is not to subject them all to a uniform (lowest common denominator) standard, it’s simply to reassert the dividing line between advisors and salespeople so consumers understand the context of the services they are receiving, and let them choose!”

I think Michael raises a good point and highly recommend checking out his post in its entirety. I’ll link to it below.



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