industry insight
than the honest advisors who try to give their clients the best advice
available without compromise — and who, for the most part, are far
better trained to do so. The nonsense put out by investment magazines and websites reaches millions of consumers every day, and they
act symbiotically with the television talkers to co-create the dangerous
illusion that what happened 10 seconds ago is relevant to your retirement portfolio.
SMARTER QUESTIONS TO ASK
If Congress and our regulators are indeed serious about protecting the
best interests of consumers, then perhaps it’s time they took a wider
view of financial advice. As we close in on a narrow professional fiduciary solution, perhaps, just for a moment, we should take a step back
and look hard at all sources of investment advice in America. Then
let’s ask some simple questions:
• Is the net result of each provider’s advice helpful or harmful in
light of even the most basic research?
• Should cable stock touts be required to disclose the track record of
their prior predictions on a disclaimer that scrolls across the bottom of
If officials get this wrong, we’re in danger
of eliminating the only safe haven in
the whole world of investment advice.
the screen as they’re confidently telling us what will happen next?
• When CNBC’s Jim Cramer is screaming that he loves this or that
stock, should there be a superimposition on the screen next to his reddening face that shows the subsequent performance of other stocks he
has hyperventilated about in the past?
• Should the discount brokerage messages saying that you can day-trade your way to owning a tropical island be investigated for blatantly
false advertising? Or should they be required to include a bold disclaimer, similar to what we see on packs of cigarettes, showing the
typical result of a novice investor churning his own portfolio?
With this bigger picture in mind, we can start to ask basic questions
that shed some light on our inter-industry discussions. Does it make
sense to allow any representative of a product manufacturer — in our
world, brokers and insurance agents — to pose as a provider of objective advice? Or should they, too, carry a disclaimer?
FINRA has argued that protecting the public is a matter of bringing
in a new bureaucratic organization (which pays its executives millions
of dollars a year). But the broader question that suddenly emerges
from this big-picture review is: Has the organization ever made an
effort to evaluate the objectivity and effectiveness of advice that is
provided to consumers? If so, where’s its data?
Money magazine’s process for evaluating “top” advisors made it
clear that Money itself would not be remotely qualified to join the list;
in fact, by its own standards, it should not be trusted. In fairness, I
could fill out the same questionnaire on behalf
of the organizations that provide 90% or more
of the financial advice received by the general
public, with pretty much the same result.
whAT’S A T STAKE
I think the fiduciary debate is about level playing fields and compelling certain disclosures.
But, in fact, what is at stake is much larger. If we
get the fiduciary debate wrong, we are in danger
of eliminating the only safe haven in the entire
conflict-ridden world of investment advice. If,
after this election, we decide to compromise on
whether advisors really do have to give uncon-flicted advice, then there will be nobody left on
the entire industry landscape who investors can
turn to for a straight answer.
In a perfect world, Congress, the SEC and
even FINRA would apply strict fiduciary standards to their own actions, and put the interests
of consumers first. That should motivate them
to sweep aside the arguments about level playing fields and accommodations with certain
business models. It should lead them to take a
broader view, and create meaningful standards
that all providers of advice should live by.
We don’t, alas, live in that universe. But perhaps a broader perspective helps us all see why
it’s so important to hold those who call themselves financial planners or advisors to real fiduciary standards.
Even if they can’t, or won’t, do anything
about the barrage of harmful advice that
assaults the eyes and ears of America’s financial consumers every hour of every day,
Congress and our regulators can at least give
America’s investors a small safe haven of genuine objectivity.
Screw this up, and consumers won’t know
where to find sanity in a world where “Six
Funds to Buy Now” passes for great advice. FP
Bob Veres, a Financial Planning columnist,
publishes the Inside Information newsletter
and website for advisors at bobveres.com.
Post your comments on Financial Planning’s
discussion boards at financial-planning.com/
forums. Readers can also send feedback to
bob@bobveres.com.
