From The Blog

“Suitable” suits brokers just fine, thank you very much

Most financial advisors do not want to be held to a high standard. "Suitable" should be enough, they say. Fiduciary standards are too hard to...

As a follow up to our recent post, “You Can’t Make Me Put Clients First,” this is just in from Financial Services Online….



CONSUMERS HURT BY FIDUCIARY STANDARD – A NAIFA survey found that about 31% of advisors feel they would be forced to work only with wealthy clients if a new fiduciary standard were imposed and 40% said that few, very few, or none of their clients would be able to afford the additional costs that would result from a fiduciary standard-related compliance cost increase. Further, about 20% said they would eliminate securities from their product offerings. “These findings are particularly relevant to NAIFA because many of our members are community-based small business owners who provide affordable insurance and financial services to the middle-income market. As the SEC examines how financial regulations are working to protect the investing public, we need to be aware of the impact a universal fiduciary duty would have on our members’ ability to continue to serve this important market.”

Oh, where to begin?  Let’s take it in order.

“31% of advisors feel that they would be forced [emphasis mine] to work only with wealth clients if a new fiduciary standard were imposed.” What can that mean?  Can it mean that advisors are not already putting the interests of “non-wealthy” clients first and would therefore be faced with either putting them first or dropping them altogether — and, worse, that the clear answer to that choice is to drop them?  Wow.  Are the wealthy clients being put first now or would the standard simply force them to put up with the hassles of putting the client first due to the high revenue earned?

“40% said that few, very few, or none of their clients would be able to afford the additional costs that would result from a fiduciary standard-related compliance cost increase.”  What, exactly, is the cost of putting the client’s interest first?  And who would bear the cost of this standard anyway?  Surely, the 40% are not suggesting that clients would have to pay additional money to be put first.  Or are they? 

Finally, “about 20% said they would eliminate securities from their product offerings.”  Seriously? Registered Investment Advisors, who are already required to put their client’s interest first under the fiduciary standard being proposed more widely, invest in securities every day.  When the 20% jettison the use of securities from their portfolios, with what do they plan to replace them?

Most vendors and business people are not required to put clients first.  Thus, “caveat emptor” or “Let the buyer beware.”  In general, this works fairly well and there are legal fraud protections and Chambers of Commerce and Better Business Bureaus, and now Facebook and Yelp and other mechanisms to “regulate” fair commerce.  

But when much of a profession is held to a, well, professional standard, and a part of the profession does not want to join in, it makes me wonder why. 

In the end it may not matter too much to you because whether your advisor SHOULD put you first or not does not mean that he or she is.  Madoff was a Registered Investment Advisor as were many other recent frauds. 

First and foremost, make sure that your financial advisor is a completely separate entity from your custodian.  He who manages your money should not be holding the securities and generating your statements. (In our case, Euclid manages money but TD Ameritrade is the custodian.  You can call TD directly or go online every minute to see what your balance is and what trades have occurred.  We never have custody of any of your assets.) 

Second, no matter who your advisor is, it a good idea to practice “caveat emptor.”  Remember, Madoff was one of the most respected and sought after money managers on Wall Street.  Engage your advisor.  Ask questions.  Read information other than what your advisor provides and try to understand, even at a most basic level, what is going on with your financial situation.  

There are many business mistakes you can make that might hurt but not be devastating.  If you buy a bad car, for example, you can either sell it or live with it for a few years or just take the loss.  But put time, care,  and thought into your advisory relationship, though, because thoughtless delegation could have a profound effect on how you live your life for the 1-40 years after your employment income ends.

At Euclid, we encourage your active participation.  We regularly recommend books, articles, links, blogs, and podcasts to assist you in your own financial empowerment.  We take the time to write this blog.  For your part, email us articles that you would like to discuss or that you believe are counter to what we say.  When you hear from a friend or read an article about something that you think would be appropriate for your financial situation, email or call us.  We are happy to talk it through with you. 

As we have written many times before, we are out of the uncharted economic waters and into unknown waters.  We have a core strategy that we believe addresses this uncertainty.


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