Executive Summary
With an increasing focus on fiduciary from NAPFA, the FPA, and a global trend towards fiduciary advice witnessed as far as reforms in Great Britain and Australia, it would seem that fiduciary is at the forefront of concerns about financial advice. Yet at the same time, we discuss the issues of fiduciary, broker/dealer, registered investment advisor, and the distinctions about advice that they imply, in the industry and technical jargon not really accessible to most clients. In the process, are we making fiduciary issues more relevant to clients, or actually diminishing the importance? In the end, is it really about having a legally-bound fiduciary on your side... or is it just about talking to someone you trust?
The inspiration for today's blog post comes from some of the discussions about the new NAPFA re-branding effort revealed at the NAPFA National conference last week, and a recent parody video I came across by financial software solutions company InStream Solutions.
The video shows an interview between a prospective client and a broker, where the broker dutifully conveys his lack of fiduciary obligation to the client and his responsibility to responsibility to serve the best interests of his firm, not his clients. Yet the client simply responds, persistently, with "I don't care." You can see the video yourself below... more thoughts afterwards.
In many ways, I think planners who have tried to have "the fiduciary conversation" with clients will unfortunately be able to relate to the video. Often the fine nuances between fiduciary or not, client-centric versus broker-centric, registered investment advisor vs broker/dealer, sound to a client like a whole bunch of technical jargon they cannot relate to. And ultimately, as the prospective client's comments reveal in the video, we often do not base our decisions about who to trust on such grand notions of who owes a fiduciary duty, but instead on much more tangible things: the lobby and physical presence of the firm, the diplomas on the wall, the commercials and marketing materials of the firm. On the one hand, I'm sure a few of you are probably holding your head in your hands seeing a client make a decision about who to trust on the basis of such things, and the video itself is a parody. Yet I think the reality is that it has far more of a ring of truth than we'd like to admit, not unlike another recent parody video of the client-planner interaction from earlier this year, that demonstrates a similar disconnect between what "we" the planner think is important, and what "really" matters to a client.
But the InStream video also does an excellent job to make the point that, to say the least, clients don't exactly walk in off the street looking for "a fiduciary" - in other words, clients never walk in the door and actually ask right out of the gate "will you serve me under a fiduciary standard?" Fiduciary is a technical term. It's legal jargon. It doesn't have relevance and meaning in the life of the average American. At best, we struggle to explain what fiduciary is, what it means, and why it's important, just to try to make the underlying point: "Don't pay attention to all that other stuff; this is what matters, and I'm someone you can trust."
In turn, that's why I think NAPFA's re-branding message has the potential to be so powerful. It's because they have intrinsically captured what the fiduciary debate is really about: trust. The prospective client reveals in the video what the typical individual uses as cues to determine whether someone is worthy of trust. The fiduciary debate, ultimately, is about re-anchoring the decision about who to trust to other, better criteria.
So what do you think? Does the video have a ring of truth to you? Is it really about fiduciary, or is it all about trust? Are advisors undermining themselves talking about fiduciary and registered investment advisors and broker/dealers and other industry jargon, instead of making it about "trust" in terms more relevant to the average client?
Michael..again a very good piece..
Post lehman crisis, a mere ‘trust me’ is never going to work.. we have to walk the talk by making the client go through the experience of working with us for a while before the clients feel and think that we are ‘trustworthy’..
One of the ways that we can prove that is requesting the old clients [ who have been with us through upturns and downturns for a reasonable amount of time] whether we could refer them to our potential clients and would they be willing to talk about us to them.
So..its all about ‘trustworthy’ rather than even ‘trust’.. And we need to be upfront to the potential clients saying that it is going to take some time to earn that! Are you up to it?
Michael:
Good video. What a laugh!
Seriously, consumers are too busy to slow down and understand and listen to what the meaning of fee-only or fiduciary is, so the new NAPFA rebranding is a good idea.
The brokerage industry spends 25% of its gross on marketing, which is a very high percentage. Perhaps the answer, like election campaigns, is to increase the marketing budget.
Don
What clients care most about is results. If you knew this person could get you where you want to go, what do you care whether they are a fiduciary or not. Of course, verifying an advisor’s skill/knowledge is very difficult. Designations are a start but don’t get you very far. The tools in the consumer’s toolbox are pretty weak.
So that leaves consumers having to rely on trust which is based on relationships (e.g., who recommended this person, what do you have in common with them) and social markers (e.g., clothing, office, style, etc). Fiduciary does not come into play, or if it does, only as a minor factor.
I see the fiduciary issue as mainly a regulatory one and not a powerful marketing one. In other words, when an advisor behaves badly, they should be sueable based on their breach of fiduciary duty. This is also why I believe all advisors should be held to a fiduciary duty.