"Government Should Not Regulate FA's Conduct by Imposing Fiduciary Duties"

ALL POSTS PRIOR TO 2021 HAVE NOT BEEN REVIEWED NOR APPROVED BY ANY FIRM OR INSTITUTION, AND REFLECT ONLY THE PERSONAL VIEWS OF THE AUTHOR.

I'm a lawyer, and I'm upset. Because the government has these rules in place. I can't, for example, represent the buyer of a business when the seller of the business interest gives me a commission to assist with its sale. How awful! Why shouldn't I be permitted to profit from such an endeavor?

I'm also the trustee of a private trust, and I'm saddened. Because, again, the government has these darn laws and regulations in place. For example, I can't sell my stamp collection to the trust, for a tidy profit for myself, even though it would be a "good" investment (at least, so I say).

I also provide investment advice. Imagine, again, my total dismay when I was informed by securities regulators that I was a fiduciary. I cannot accept commissions from selling hedge funds, non-publicly traded REITs, oil and gas limited partnerships, and all manner of other kinds of illiquid investments. I can't receive expensive trips and other awards for meeting sales quotas. I can't receive additional compensation through casually disclosed payments for shelf space and other revenue-sharing arrangements. Even though I would receive much more personal compensation as a result.

Imagine, those government regulators even want me to exercise "due care" when providing investment advice! Oh, my, the plaintiff's attorneys are clamoring ... they are parked outside my door, even!

Oh, woe to me. The federal government is so intrusive! In fact, it must be a communist conspiracy, hatched by some liberal academics in some ivory tower in cohorts with evil government bureaucrats.

Of course, I jest.

Yet, over the past few weeks, I have received many communications - from "financial advisers" I have never met - telling me in no uncertain terms that the government has no right to interfere in their business as a financial advisor. They should be free of all government restraint.

Hogwash.

As James Madison so famously wrote, "If men were angels, no government would be necessary."

The fact of the matter is ... fiduciary duties are not imposed lightly, but are imposed when other legal constraints are ineffective - such as disclosures (not read, if read not understood, by consumers, in the complex and ever-changing world of investments).

The fact of the matter is ... fiduciary duties serve to restrain greed.

The fact of the matter is ... some government regulation of business conduct is justified. And the U.S. Department of Labor's Fiduciary ("Conflict of Interest") Rule is perhaps the most necessary, thoughtful, and elegant regulation to emerge in the last few years.

The fact of the matter is ... I truly am an attorney. I do serve as the trustee of a private trust. And I am a registered investment adviser. As such, I accept the restraints on my conduct that come with my fiduciary status. I accept the responsibility to avoid conflicts of interest and to act with a high degree of expertise and care.

Yet, even though I am "burdened" with such fiduciary obligations:

• I earn reasonable, professional-level compensation for my expertise.
• I serve clients both large and small.
• I provide holistic advice to my clients, often changing their lives dramatically for the better.
• I look forward to going to work each and every day.
• I look forward to serving my clients as a trusted professional.
• I know I add value, through my expertise and through my stewardship of my client's hopes and reams.
• Lastly, I don't ever think about potential liability as a fiduciary. Because by avoiding conflicts of interest, and by maintaining and applying my expertise, I have nothing to fear.

I have been for 30 years an attorney, and I have served for over 15 as an investment adviser, and for nearly a decade as a private trustee. In these roles, I have operated as a fiduciary willingly, and happily.

The fact of the matter, as I've illustrated before here and here, I've seen the harm done to my fellow Americans by non-fiduciaries providing financial and investment advice. Hundreds of times. Perhaps thousands of time. I've lost count.

I've seen Americans' retirement hopes and dreams crushed through investment advice that hides behind the low standard of "suitability." I've seen the huge extraction of rents by Wall Street and the insurance companies from the investment portfolios of my fellow citizens.

I've seen the failures by FINRA to raise the standards of conduct for brokers, as it opposed (and continues to oppose) a bona fide fiduciary standard of conduct.

I have a saying about those who continue to impose harm on investment consumers: "Either they don't know, or they don't care."

And I have a saying about those who continue to oppose the imposition of fiduciary status. They just don't understand the substantial public policy rationale behind the imposition of fiduciary status - whether it be on a trusted attorney, a trustee, or when providing advice about investments.

So, to all those who oppose a "government mandate" that you act as a trusted, expert adviser when providing financial and investment advice, and in the best interests of your clients ... you may prevail in the short term, for now. But political winds change, and the fiduciary movement has its legs.

Every year that goes by bona fide fiduciaries continue to gain market share.

Every year that goes by more and more consumers will ask the right questions to ensure that they are receiving advice only from bona fide fiduciaries.

Every year that goes by the business model of selling expensive, often risky and inappropriate investment and insurance products, will be in ever-greater jeopardy. It's not what Americans want. It's not good for American business. It's not good for capital formation. Your business model is a dinosaur, and only through the money-fueled intensive lobbying by FINRA, SIFMA, FSI has the extinction event, so long overdue, been temporarily delayed.

Join me now, or be forced to join me later. It's your call. But, it's inevitable.

And, just as an aside. Being a fiduciary to your clients just happens to be ... the right thing to do.