Executive Summary
In the ongoing debate about the fiduciary standard, it continues to be difficult explaining to the public just what fiduciary is and means, and how there's a difference between brokers who sell products and fiduciaries who give advice. A recent video by Hightower Advisors tries to illustrate the point by comparing butchers who sell meat to dieticians who give advice about what to eat; you wouldn't expect your butcher to give objective dietary advice, and by analogy you shouldn't expect your broker to give you objective financial advice, either. If you want advice about what to eat, you go to a dietician, and by analogy when you want financial advice, you go to a fiduciary. Yet while the video does a good job drawing the distinction between brokers and fiduciaries, it perhaps unwittingly implies that recent regulatory and advocacy efforts may be misguided. It would be nonsensical to pass a law requiring all butchers to become trained dieticians to give advice about eating under a uniform dietary advice standard, when at the end of the day their job is simply to be a butcher and sell meat; extending the analogy, does that mean it is equally absurd to expect a uniform fiduciary standard for brokers? Is a better alternative just to require butchers to call themselves butchers, and brokers to call themselves brokers, and let neither give advice or hold themselves out as an advisor in the first place?
The inspiration for today's blog post is the recent "Butchers and Dieticians" video created by Hightower Advisors CEO Elliot Weissbluth, and the striking analogy it makes between butchers versus dieticians as compared to brokers versus fiduciaries. As the video notes, in the case of the butcher, we trust them to sell us a good piece of meat, but have no expectation they would send us down the street to the fishmonger because fish is healthier for the heart. In the case of the dietician, though, we expect healthy advice based on our own interests and needs. In financial services, brokers are like butchers that sell financial products instead of meat, and fiduciaries are like dieticians giving advice in your best interests. You can see the full 2.5 minute video below.
Personally, I think the analogy is pretty good, although in reality Hightower isn't talking about the difference between brokers and fiduciaries, per se, but the difference between brokers and advisors. Brokers sell products; advisors give advice, which almost by definition is fiduciary. The implied point from the video: you wouldn't ask for diet advice from your butcher - because you know it's going to be meat-centric, and not necessarily in your best interests - so you shouldn't ask for financial advice from your broker, either. And arguably, in the financial context, the problem has been exacerbated by having brokers as salespeople call themselves financial advisors. To extend the Hightower example, imagine the further confusion if butchers didn't just sell meat, but did it while calling themselves dietary advisors?
To me, though, the most striking thing about the video is not simply how it illustrates the difference between brokers vs advisors by comparing butchers to dieticians; it's equally effective at illustrating the misdirection of recent advocacy and regulatory efforts.
For instance, an implicit and sometimes explicit position of many consumer advocates has essentially been that "all brokers should be fiduciaries" - and in fact, the direction of recent regulation as an outcome of Dodd-Frank has been towards adopting a "uniform fiduciary standard" for all brokers. Yet imagine extending the analogy - if butchers were giving too much meat-biased diet advice and calling themselves dietary advisors, would the best solution really be to require that all butchers become better trained dieticians so they give appropriate diet advice!? Is it really helpful to the public if you can only get a cut of meat for your dinner by going through a medical exam to get your dietary advice first? Viewed in this context, the idea of suggesting that all butchers must be properly trained dieticians giving diet advice, or they can't sell meat at all, sounds somewhat ridiculous. Their job is not really diet advice in the first place; their job is to sell a fine cut of meat! They were just using the dietary advice to try to sell more meat.
Instead, the butchers and dieticians analogy makes clear that there may be a simpler, more appropriate alternative - instead of requiring all butchers to become dieticians under a uniform dietician standard, simply tell the butchers not to give diet advice at all, and not to hold themselves out as dietary advisors when they're really just selling a fine cut of meat! In fact, apply sanctions to them if they do try to give diet advice when they aren't qualified to do so, and punish them for holding themselves out as dietary advisors when in reality they should simply call themselves what they are: butchers.
This serves to highlight the point that at the end of the day, the entire fiduciary versus suitability debate is misguided; the real choice is not fiduciary versus suitability; it's between buying products from a salesperson or getting advice from an advisor. In other words, the problem is not that butchers aren't fiduciaries, and it's ridiculous to argue what standard should apply to a butcher's dietary advice; the problem is that butchers shouldn't give diet advice or hold themselves out as dieticians in the first place. Similarly, the problem is not that brokers aren't fiduciaries, or what standard should apply to the advice that brokers give; the problem is that stockbrokers (and insurance agents, and other financial products salespeople that stopped calling themselves what they are and started calling themselves 'financial advisors' and 'financial consultants') shouldn't give financial advice or hold themselves out as financial advisors or consultants in the first place. Which means in the end, the solution is not to make butchers into dieticians or brokers into fiduciaries; it's simply to draw a clearer distinction between who is a fiduciary advice-giver and who is a product salesperson, by calling a butcher a butcher, a broker a broker, and the only people who hold themselves out as advice-givers - regarding diet or finances - are the advisors.
This lets the public have the same choice when consuming meat or financial services: if you know what you want to buy, get a salesperson to buy it from; and if you want advice, get it from a true advice-giver. You don't expect credible and objective advice about alternative products from your butcher, and nor should you expect it from your broker, either. Yet just as the butcher and dietician do co-exist in a spectrum of services available the public, so too can the broker and the financial advisor... as long as each sticks to their respective role.
So what do you think? Does the butcher and dietician analogy resonate with you? Do you think the best solution is to force all butchers to become dieticians, or simply to bar them from holding themselves out as dietary advisors and giving diet advice in the first place? Does the parallel hold true for brokers and advisors, too?
