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Wall Street Steward Blog

Fiduciary Debate

Inside the investment industry, a type of civil war is raging. Advisors vs Brokers. Fiduciary vs Suitability. I think this whole argument is ridiculous.

Here is what is happening in layman’s terms: in most every professional industry (think attorney or doctor), the pro is required by law to act in the best interest of the client/patient. In our business, our responsibilities depend on what type of account you have and which registrations we hold. This is a recipe for disaster in my opinion.

I believe that every single individual or entity should be required BY LAW to act in the best interests of clients when managing their money. It is simply an ethical question:  if someone was handling your hard earned money, wouldn’t you want them to put your interests over their own?

Those that argue otherwise (that an investment only has to be suitable) claim that if everyone is held to the fiduciary standard, that many advisors/firms will stop handling small accounts because the costs will outweigh whatever fee they charge. In other words, they cannot comply with a potential new law PROFITABLY. I wish firms would stop hiding behind this pitiful excuse….I doubt the end client is concerned with how much this law might hurt your profitability. Figure it out. Or, let the CFO figure it out. There is a way to make it work, and anyone with a financial mind knows that, so stop boo-hooing about your bottom line.

Furthermore, the battle for the “little guy” (small accounts) is already being waged at many large firms. Some do not compensate their advisors at all on households under $250,000. This simply makes the advisor either (1)work for free for the little guy, or (2)not help them at all. These firms figured out that it was not profitable to help the little guy, so they have taken proactive steps to get the little guy to leave them. This is the financial equivalent of a guy that wants to breakup with his girlfriend, but doesn’t have the guts to do it, so he treats her poorly until she leaves him. Then, he can play the “poor, pitiful me” card. Penalize the small investor until they transfer, and then claim that your firms serves all shapes and sizes.

I would challenge you to find me ONE financial institution that does not penalize small accounts in one way, shape, or form. Small account fees, inactivity fees, high account minimums, etc. Maybe there are a few, but I am not aware of any. SO, if that is already happening, why use the fact that it “might happen” as your lead argument for keeping the suitability standard? It is garbage.

Why don’t we consider this argument from the client’s shoes?  Which standard protects them more?  Which offers disclosure of any potential conflicts of interest?  Which makes the industry tougher on those that are unethical?  If you were the investor, which standard would make you more comfortable?

Why is this still an argument?

Just in case you are interested, I have acted as a fiduciary since the day I entered this business.  Always will.  And my opinion is that if you are not comfortable acting as a fiduciary, you should leave the investments business.