Do you work with a financial advisor? If so, is that advisor required to put your interest ahead of his/her own? If you are like 99% of other investors out there, you probably don’t know for sure. There is a difference between having to act in a client’s best interest (being a fiduciary) and recommending suitable products (brokers). The vast majority of advisors are brokers or have the option to operate as a broker, and therefore don’t have to act in their client’s best interest. Some policymakers are pushing for EVERYONE who gives financial advice to be held to a standard that puts the client’s interest ahead of their own. It seems like it should be a no-brainer for lawmakers who are supposed to be representing the people. Nothing could be further from the truth. The New York Times has an article out that shows how hard it has been for those in favor of these consumer protections to make any headway. Wall Street firms and their related associations are stymieing every effort even to discuss/debate this legislation.
So what does this mean for the average investor? Quite honestly, most investors judge their relationship with their advisor on trust, not on whether they are a “fiduciary” or not. This is unfortunate since we have seen countless situations where advisors have abused that trust without the client even realizing it. If you were sold a variable annuity, private REIT, closed-end fund, IPO, load mutual fund, or structured product, there is an almost 100% chance you are working with a non-fiduciary and could have been taken advantage of. These products generate gigantic commissions for their advisors and selling company, which is why they are fighting so hard to prevent legislation like this from passing. You see, if the law changed, requiring everyone to act in their client’s best interest, it would be tough to justify the existence of some of these products in their current form. More than 50% of large brokerage firms’ revenues come from selling products for a commission in many cases. These laws threaten the very business model they were founded on. In the movie, The American President, the president (Michael Douglas), in speaking about an upcoming political battle, says that they should “Fight the fights they can win.” His top aide (Martin Sheen) counters by saying they should “Fight the fights that are worth fighting.” As a true fiduciary to our clients, Greenspring believes that this is a fight worth fighting, even if it isn’t won in the end.
