Sunday, July 20, 2014

Evidence of Harm; Who Will You Choose to Be?

What I write here may mean nothing to the masses of the American people. The many entries in this blog are read by perhaps only a few thousand. Here I write mainly for those who are partisans for those in the cause of the fiduciary principle. Perhaps, on occasion, a few lines from an entry in this blog will be picked up by the industry press. But mostly the readers of this blog are those already involved in the fiduciary debate.

But our fellow citizens remained untouched, and largely unaware, of the public policy debates in which we engage. Americans toil in jobs and careers, seeking the freedom that comes from achieving the goal of financial security. They save. They invest. They seek to manage their tax burdens. They hope that they are acting correctly.

To assist them to achieve their goals, our fellow citizens turn to financial advisors. In this incredibly complex financial world, it is extremely rare indeed to find the individual consumer who does not require assistance from an expert, trusted advisor.

These consumers are vaguely aware that financial advisors are regulated and supervised. They are informed by their financial advisor that his or her advice will be “objective” and “in their best interests.” Some financial advisors go further, and tout that they are “fiduciaries” under the law.

But most of these “financial advisors” and “investment advisers” and “wealth managers” – however they are regulated – are not true fiduciaries at heart. They disclaim their core fiduciary duties. They place another piece of paper in front of the client and say, “Sign here.” Unwitting clients, wanting to trust their advisor, then permit their advisors to abrogate their core fiduciary duties, to engage in unwarranted conflicts of interest, and to receive additional compensation, often to levels wholly unreasonable.

95% of the time, true fiduciary practices are not employed by financial advisors. Consumers are subjected to a mere illusion of protection, nothing more.

I have seen the evidence of this harm.

I have seen hundreds of my fellow Americans possess investment portfolios that consist of highly expensive or risky investments. I have seen these portfolios designed with little consideration to proven investment principles and tax-efficiency. I have seen the attainment of the financial goals of my fellow Americans substantially delayed, and at times obliterated, as a result. I have seen the evidence of this harm.

I have seen hundreds of retirement plans possess extremely high fees and costs, despite the economies of scale which retirement plans can bring to bear on behalf of the plan participants. I have seen the retirement futures of millions of my fellow Americans circumscribed, as their retirement nest eggs are far less than that which is possible. I have seen the evidence of this harm.

I have seen hundreds of financial advisors who have no real training nor any expertise in providing personalized investment and financial advice. I have seen hundreds of financial advisors trained by consultants in how to develop relationships of trust and confidence with their customers, in order to be able to sell wholly inappropriate investment products to them. And I have seen hundreds of financial advisors who desire to “do the right thing” by their clients, yet be constrained by the restrictions imposed by their employers; they are forced to sell proprietary funds, engage in principle trades on unfavorable terms to the consumer, and they are restricted from offering the best investment products available (as these products don't provide, to their employers, payment for shelf space, soft dollars, 12b-1 fees, or other revenue-sharing arrangements). I have seen the evidence of this harm.

I am part of a community of investment advisors and financial planners. But I must admit - there is no reason for American consumers to trust us. Regardless of what title we utilize. Regardless of what certification or designation we possess. I am not a part of a “profession,” but only of a trade, deserving of no more respect than a used car salesperson.

The sad influence of Wall Street in Washington

It is wholly unclear if policy makers in Washington, D.C. are listening to the call for a broader and more correct application of the fiduciary standard. Congress, under pressure from Wall Street, seeks to influence the government agencies from the exercise of their authority. The Administration seems fearful to engage in combat with Wall Street and its tremendous resources.

Yet, there are a few dauntless souls, such as EBSA’s Phyllis Borzi and her staff. They realize that imposition of the fiduciary standard upon all providers of advice to qualified retirement plans and IRA accounts will secure for hundreds of millions of Americans a brighter economic future.

But powerful opponents exist. The courageous voices of Phyllis Borzi and her team, and consumer advocates, are drowned out by the estimated 3,000+ financial services lobbyists and the hundreds of millions of dollars they deploy to secure influence over Capitol Hill. Wall Street firms and their lobbyists will "do whatever it takes" and will "spend whatever it costs" to kill any broader application of the fiduciary standard.

Additionally, those few dutiful public servants who seek to protect individual investors are far outnumbered by other public servants who engage in the folly of the revolving door between Wall Street and government agencies. As a result of this revolving door, few leaders and staff of  government agencies are brave enough to advocate any restrictions which may be imposed upon Wall Street. They either possess allegiance to the firm and sales culture they came from, and/or they look forward within months or years to the promise of high-paying jobs on Wall Street or in the law firms or lobbying firms employed by Wall Street firms (as long as they don't "rock the boat" while serving in the government agency).

Indeed, I would observe that few of the current staff at the SEC believe in a bona fide fiduciary standard. Even if Chair Mary Jo White desires to proceed to reform Wall Street's practices in the delivery of investment advice, she appears surrounded by key staff - division heads and others - who desire to preserve the status quo.

Over the past four decades the SEC has refused to apply, and has weakened, the fiduciary standard. As a result of these and other actions and inactions at the SEC, Wall Street's pressure and influence has transformed what was once the most well-respected of our government agencies to a hollow shell.

The result of Wall Street's lobbying visits to members of Congress and the government agencies, which outnumber those of consumer advocates by 20 to 1 (or more), is a distortion of the truth. Wall Street knows that if their lies are said loud enough, and often enough, they become the “reality” perceived by those “inside the beltway.” I have personally observed policy makers, and their staffs, bombarded by visits from Wall Street’s firms and lobbyists, and thereafter adopt views of our present financial services system which are wholly distorted from the actual reality facing Americans on Main Street.

Financial and investment advisors – if you desire to do what is right for your clients, what can you do?

You can educate yourself, both formally and informally. You can become the expert advisor our fellow Americans deserve, able to critically examine financial and investment strategies, weigh risks and rewards, and recommend only those few strategies and techniques which withstand close scrutiny and, often, the tests of time.

You can choose to become truly independent, by transitioning to a firm that has embraced, wholly and without reservation, a bona fide fiduciary culture. You can choose to move on, so that you can truly sit on the same side as your client. You can choose to love being able to go to work and assist your fellow Americans, as you will deserve of their trust. You can choose to be stewards not only of your clients’ wealth, but also of their hopes and dreams. You can choose to love what you do, and to love yourself, as you embrace a love for your neighbors.

You can then join one of more of those very few professional organizations which embrace a bona fide fiduciary standard and who require practice models that eschew conflicts of interest – the National Association of Personal Financial Advisors (, the Garrett Planning Network (, and/or the Alliance for Comprehensive Planners (

You can choose to be part of the future, not the past, of investment advice. You can choose to abandon product sales in return for the joy derived from the delivery of objective advice. You can choose to be a trusted advisor. You can choose to be a bona fide fiduciary. You can choose to be part of the small but ever-growing community of professionals. You can choose to go to work each day with a smile on your face and knowledge that you are doing what is right for your clients.

Until many more make this choice, we cannot become a true profession. We have not earned that right. Collectively, at the present time, we do not deserve the trust of our fellow Americans. But, over time, with effort, this can change.

There are already a few financial and investment advisors – thousands (not tens of thousands) across this land – who possess the requisite expertise and true objectivity to truly be deserving of the title “professional.” They practice as bona fide fiduciaries. They are trusted advisors to their clients. They act as "purchaser's representatives," rather than "investment manufacturer product representatives." And, as word spreads of their deeds, their market share continues to gain.

You can take the actions necessary to join with other bona fide fiduciaries. Should you choose this path, the personal rewards (financial and otherwise) resulting from your endeavor will be far more than you ever thought possible.

Then, together, we can continue to press forward for adoption of the fiduciary principle. Together we can place our clients’ best interests above our own. Together we can justify our professional-level compensation, as a result of the application of our expertise in the representation of our clients.

Then, together we can correct the current sad state of the financial advisory industry. Rather than merely bear witness the evidence of harm caused by so many in financial services today, we can use our strengthened collective influence our policy makers to extend the fiduciary principle to all providers of financial and investment advice.

Only then will we, as a profession, earn the respect of our fellow countrymen, and enable them to better succeed in pursuit of their financial goals. Only then can we end the harm to which hundreds of millions of our fellow Americans are subjected.

Our fellow Americans deserve the emergence of a true profession of financial and investment advisors, bound together by the fiduciary standard of conduct.

1 comment:

  1. Well said Ron. Thanks. Here is one former "advisor's" take on things and how some clients are fighting back against the misrepresentation and getting their money back.


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