Executive Summary
In the ongoing debate for the fiduciary standard, supporters of fiduciary have suggested that everyone in financial services should be subject to the standard, while those opposing have responded that consumers deserve a choice between fiduciary and suitability; in essence, they simply suggest that we should let consumers choose whatever method of financial services they prefer, and may be the best model win.
But to me, the choice presented is a false one: the real choice is not between fiduciary advice and suitable advice, the difference is between fiduciary advice from an advisor and suitable product sales from a broker. In other words, the real choice we should present to consumers is between advice and product sales, and the real goal of the planning profession should be to focus on who is and is not qualified to deliver advice, and really call themselves an advisor in the first place!
The inspiration for today's blog post comes from several recent Twitter debates that I've had about the fact that I believe the focus on fiduciary is the wrong message to send to the public. As I've noted previously on this blog, consumers already believe that advisors have their best interests at heart, so promoting fiduciary isn't really about saying "you can trust me" - it's just about bashing your competition and saying THEY can't be trusted. And a negative advertising campaign that bashes the competition is a terrible way to advance the profession, and your own financial planning practice.
But the real point here is that fiduciary advice vs suitability advice is a false dichotomy; the only kind of advice is fiduciary advice, delivered in the best interests of the person receiving the advice. Merriam-Webster defines the act of advising as "to give (someone) a recommendation about what should be done" (emphasis mine); in other words, telling the person what should be done that's in their interests is the very essence of what advice is, in the first place! On the other hand, the suitability standard is about offering a product for sale that is suitable - or at least, not unsuitable - given the client's circumstances. The latter, simply put, is not a standard for advice; it's not actually about advice at all, but simply determining whether a product being sold is so unsuitable that it's unconscionable to allow it to be bought at all. Advice, as Merriam-Webster makes clear, it about telling someone what actually should be done, not merely what would be "not unsuitable" to buy. In fact, the existing securities regulations (Section 202(a)(11)(C)) have already stated that any advice delivered in a product sales context should be "solely incidental" to the sale of the product; if the primary focus of the relationship is about the delivery of advice and/or special compensation is received for advice, the fiduciary standard already applies!
Accordingly, the real debate is not about whether consumers should have a choice between fiduciary or suitability; the real choice is between working with an advisor who delivers advice and working with a salesperson (a broker) who sells a product. Notably, the latter is not intended in a derogatory or pejorative manner; it is simply to make the distinction between someone who offers bona fide advice - which, by definition, is in the interests of the person receiving the advice to get a recommendation about what should be done - versus someone who offers a product for sale, which is implicitly in the interests of the person or company offering the product for sale but should only be offered when it is not unsuitable to do so.
Why is this distinction of advice versus sales (and advisors versus brokers) more important than fiduciary versus suitability? Because, cast in the context of advice versus sales, the solutions quickly become more readily apparently. The goal of fiduciary advisors should not be to subject everyone to the fiduciary standard; it should be to subject everyone offering advice to the fiduciary standard. If you don't want to be treated as a fiduciary, that's fine; just don't offer advice, and don't hold yourself out as offering advice. People who offer securities or insurance products for sale and operating as brokers or company agents would eliminate the words "financial advisor" or "financial consultant" from their business cards, and simply hold themselves out for doing what they do: registered representative, stockbroker, or insurance agent. Those who offer advice hold themselves out as advisors, and subject themselves to the appropriate standard.
In this framework, then, it's not about whether consumers deserve a choice between fiduciary and suitability standards; it's a choice about whether they want to buy their products from a broker salesperson, or receive advice from an advisor. It's a much clearer choice. Eventually, we might even see a world where a prospective buyer of an insurance policy, after being told about the policy's benefits and features, asks the question "But is this policy right for me?" to which the insurance agent responds "Oh, I'm sorry, I can't give you advice on that; you'd have to ask your financial planner." The agent responds this way because he/she doesn't want to be held to a fiduciary advice standard if he/she isn't giving advice. And the consumer receives a genuinely clear distinction about what role the insurance agent does, and does not, serve.
In fact, arguably consumer clarity itself is a major benefit of shifting the dialogue in this manner. While consumers have made it clear they don't understand the different between a fiduciary and suitability standards very clearly, the difference between "is this person giving me advice, or not" is much clearer. In fact, it highlights the problem, as noted in the RAND study itself: "most investors believe that the financial intermediary is acting in the investor's best interest [regardless of whether delivered from a broker-dealer or investment adviser]." Perhaps the best target for advocacy is not to expand the fiduciary standard to all, but instead to remove the "solely incidental" exception for advice delivered by registered representatives, and simply make all advice subject to fiduciary.
But the bottom line is this: debating about the fiduciary versus suitability standards is a lost cause. The public doesn't understand the distinction, in no small part because they simply cannot conceive of any advice that isn't in their best interests, since that contravenes the very definition of advice. The real issue to the consumer is whether they are receiving advice at all, or whether they are simply being pitched a product for sale. By creating a distinction between product sales and advice, consumers can have a clear choice about which they want, and each can be regulated in its own appropriate framework. And if a product salesperson doesn't want to be held to the standards of advice - client-centric fiduciary, with the necessary competence including education, training, experience, and ethics - that's fine; just make it crystal clear to the buyer that no advice is being delivered. Just as so many advisors are already quick to emphasize that they are not tax advisors and cannot/do not give tax advice, so too would they make it clear they are not financial planners and cannot/do not give financial advice, unless they truly wish to deliver such advice and be held to the associated standard.
So what do you think? Is "advice vs product sales" and "advisor vs broker" a better distinction than "fiduciary vs suitability"? Does it make a clearer distinction for the public? How could we shift our advocacy, lobbying, and discussions with the public if we focused the debate on separating advice from product sales, instead of fiduciary from suitability?
