One Standard or Two?

[DG14]

How does the fiduciary standard affect those that only deliver transactions under a new harmonized standard? Shouldn't the client be able to determine on their own if they need transactional support with some access to "information" given by the transactional agent (broker) if that is their preference? Caveat emptor....

[curtweil]

Bob - as long as there is a functional distinction between those who sell a service - planning - and those who sell a product, as long as there are client-centered advisors and sales-centered advisors, as long as there are those who act like fiduciaries and those who don't, we will need two forms of regulation.
If regulators truly understand that their job is to protect the investing public, then they will have to ensure that clients know what they are getting: disinterested advice or interested advice. And, while they are at it, they need to ensure that the attempts by the salespeople to look more like the fiduciaries are countered and frustrated and made expensive.
The world does need salespeople: nothing gets done without them; every successful planner is also a good salesperson, selling services.
There is nothing wrong with earning a commission as a reward for finding a buyer or seller.
What is wrong is "flying under false colors," pretending, by title, word or deed that one is objective, impartial, recommending-only-whats-best-for-you when the true objective is always making the sale.
Planners plan around the client's life goals; this may drive product or service sales.
Salespeople sell what earns them the most.
The distinction is significant and ignorance of it can be, and often is, harmful to the financial well-being of the public.
My stomach churns at the number of ads that I see touting "estate planning" seminars, complete with dinners, at which I know index and variable annuities will be sold to older consumers.
The bile rises higher every time we get a new client who has been sold an annuity by a bank employee, into their IRA, or to an 81-year old client, with a 14-year penalty period.

[Stephen Winks]

Bob,


There is one fiduciary standard. The determination of fiduciary standing is relatively easy. It essentially requires broker/advisers to be properly resourced by their broker/dealer or custodian so advice is safe, scalable and easy to execute. This requires (a) a prudent process (asset/liability study, investment policy, portfolio construction and management) with an audit path to statutory documentation to assure objective third party experts that the adviser is fulfilling their fiduciary duties which makes advice safe and scalable as a business enterprise, (b) advanced technology that supports continuous comprehensive counsel and transparency in cost and compensation required for fiduciary standing, (c) work flow management tied to a functional division of labor (adviser, CAO, CIO) so the expert advice is both safe and easy to execute, (d) conflict of interest management as disclosure does not remedy the conflict, thus making fiduciary standing in the client's best interest possible, (e) expert advisory services support for each of the ten major market segments advisers serve. With this type of large scale institutionalized support for fiduciary standing, every adviser could act in a fiduciary capacity if their clients prefer their adviser to act in their best interests.



Conversly, clients may not prefer their adviser to act in their best interests and Brokers engaged in retail sales who are not accontable for their recommendations and are not transparent in the the cost of investment vehicles they sell and do not disclose their compensation, by default, choose not to act in a fiduciary capacity.



Thus, it is up to the industry to adapt. In England, when the FSA established a fiduciary standard 70% of insurance agents left the industry because of the accountability and transparency requirements. By acknowledging the fiduciary standard of care the insustry moves from what has been often described as unethical but legal behavior to behavior which is now deemed illegal if one is serving in an advisory capacity and held to a fiduciary standard of care.



Advisers who are acting in a fiduciary capacity are constructing and managing custom portfolios for each individual client for 40 to 60 basis points in the client's best interests including all cost, while brokers under a suitability standard entailing no accountability for recommendations use retail mutual funds at 130 bps, trade execution cost at 100 bps and advisor compensation at 100 bps for 330 basis points all inclusive. How the brokerage industry reconciles this cost and responsibility differential will be a challenge as it requires a reorientation of the industry from product distribution to acting in the client's best interest. Rather than brokers selling investment products, advisers address and manage investment and administrative values on behalf of the consumer in their best interest.



Rather than the industry continuing to push back on its responsibilities owed to its clients, the industry would be better served by genuinely being interested in the best interest of its brokers who want to act in the best interest of their clients without having to reinvent the wheel.



SCW

[Dr Dame]

Does one standard equate to one form of compensation? How will this effect captive agents that sell variable life? It's nice to have theory, but I think regulators need to think through the realities about 'what does this look like' in real life for the general public. ALL professions - CEOs, Dr., lawyers, CPA's, etc all have 'bad apples' in their profession. More regulations will not stop unethical behavior. Let's just have more enforcement of our current regulatory standards.

[tdj]

This issue is not as simple as some make it out to be. For example, if you lump life insurance agents in the mix, including those who do not have securities licenses, how can they reasonably be expected to offer investments as an alternative to cash value life insurance? And how can those without insurance licenses reasonably be expected to offer cash value life insurance or annuities as an alternative to investments?


Mr Winks thinks that the issue is simple, but his answer revolves solely around investment advisory services. Isn't there a lot more to finances than simply investments? What about financial planners who have IAR licenses, but only do fee-based financial planning?...in other words, they give advice on financial matters for a fee (not just investments), and they do not manage client portfolios...how do they fit into the mix?



Part of the issue may be that the FPC has been trying to lump themselves together with RIA/IAR's, when they ought to be defining their own profession. The way I see it, financial planners are holistic financial advice-givers, specializing in putting pieces of a client's financial puzzle together. One piece of that could be acting as an RIA/IAR in managing a client's portfolio, but it's possible they could outsource that, just as they can also be a life insurance agent or outsource the implementation of that part of the plan as well. The same goes for P&C insurance and health insurance. Some financial planners are also CPA's, and can offer tax planning and tax preparation. Others choose to, again, outsource that part of the implementation. And yet the financial planner, while not being an absolute expert in every area of finances, must still have a good grasp of the rules of the game in each of those financial arenas.



Taken from Sid Mittra & Anadi Sahu's book (10th ed) Practicing Financial Planning for Professionals, the financial planner must put together a client's financial S-E-C-U-R-I-T-Y:



Security through risk management

Education planning

Cash flow management

Ultimate disposition through estate planning

Retirement planning

Investment planning

Tax planning

Yearning for financial independence



For business owners, planners must include business planning, succsession planning, and employee benefit planning.



'Planners' who simply focus on annuity sales, are, in my opinion, not planners.



I think the planning profession should have its own compensation model much like attorney's: charging a fee for advice on a value basis, an hourly basis, or flat fee basis.



Then, if planners choose to add other services (ins agent, money management (AUM), broker, etc), they may be compensated in additional ways (fully disclosed, of course). Though if they have a financial planning arrangement with the client, the highest fiduciary standard applies to all other aspects of the client relationship as well (cannot take off the 'fiduciary hat' and put on a 'suitability hat' just to make an insurance sale...if the 'fiduciary hat' is worn at any time with the client, it must be worn at all times).



It would also help if the word 'advisor' was banned from use. A true 'advisor' is one who sells advice. And yet product salesmen call themselves advisors. When you walk into a auto dealership, you automatically know you are dealing with car salesmen who make a commission if they sell a car. They don't hold themselves out to be 'car advisors', and yet that's exactly what brokers under the suitability standard have done.



My simplified solution would be to 1) require financial planners to adhere to a fiduciary standard when giving financial advice for a fee, including when recommending products whether they plan on selling those products or not, 2) require RIA's to adhere to a fiduciary standard when managing portfolios and giving investment advice, 3) require reg rep's to hold themselves out as investment sales reps and not as advisors and adhere to a suitability standard, and 4) require insurance agents to hold themselves out as insurance agents and not as advisors and adhere to a suitability standard. For those who are licensed to do all of the above, again, the highest standard of care required at any time with a client must be required at all times with that client. So when selling a financial planning client a life insurance policy, a fiduciary standard must be met.

[Stephen Winks]

All good points:


Could not agree more with Curt Weil.



Caveate emptor or buyer beware is what regulatory reform is trying to mitigate. There is nothing wrong with commission sales, it is just under Dodd-Frank salesmen must compete with advisers who are faster (continuous comprehensive counsel), better (accountable for their recommendations subject to the fiduciary standard of care) and cheaper (total transparency in cost and compensation). From the perspective of the consumer, fiduciary standing is VERY attractive as thier best interest is served. Isolated transactions disjointed from a comprehensive perspective is a very expensive way for clients to approach advisory services, but the client unwittingly makes that decision every day. This is the basis of a financial services profession emerging.



As for the breadth of counsel provided, advice by its nature must be limited in scope otherwise we get into matrimonial matters, ect. sometimes described as life planning which is impossible to credential. Financial planning is somewhat finite in its scope and certainly includes investments--a primary means of planner compensation and the principle means of compensation for their supporting broker/dealer or custodian. Insurance applications are not exempt from general fiduciary standards in the best interest of the consumer and require accountability as a matter of credibility/professional standing on the part of the agent which supercedes present professional standards.



SCW

[Dave Ehrenthal]

I think the issue is transparency to investors. If an adviser does not put the investor's interest before their own interest of earning a commission for the sale of a product, the consumer needs to know. And the converse. Then, it's up to the consumer to make a decision. I think we would like to know if our medical doctor is prescribing medicine to make us better or to earn a commission. And financial assets are linked to physical health.

[jay]

Two points, fairly dissimilar, but both found in this discussion. As long as it takes as much time to consider what to sell based on the convoluted commission scales found at most B/D houses as it does to make the sale, there is a problem on how compensation (i.e. commissions) is promoted in this field.



With regards to standards as a whole, there should be single oversight. As a practical matter to this discussion, why is that when one has licenses while working at a B/D of any sort, should then lose them just by changing jobs and going to a RIA?

[Tall John]

I'm of the opinion that more than two levels need to exist, and not because of how we sell things, but because of how people want to buy things. Some people would really still like to limit their purchases to a single transaction or two, where they already have made up their mind and don't want any of our advice. (Not to limit this but think, physicians!)
Some others may be at the lower end of the economic ladder, and want relatively simple plans, and some pretty basic devices like something to fill in a hole from a company offered retirement package, or some college cushion (they know they can't help much with the prices of tuitions and all that go with it, but at least something for the children).

Then there are those who are in need of, and want, full service, real planning, and have the bucks to make things go the way planners dream they should. Used to be the kind of thing you did if you were an RIA or Senior Account Exectuive (fancier name, old registered rep). Trying to make one regulation work for all of these may be like having an honest politician, and a kind regulator -- a dream.

Still, this could be done with one regulator, different levels of licensing.



Tall J

[stanquant]

Tall John is on the right track. What seems to be missing from the discussions we professionals are having is what really does the public want? Not everyone wants a fiduciary even though their experiences might be more expensive & abusive and frankly a lot of consumers think they are smart enough to figure things out for themselves. I disagree with that idea based on my ligitgation experiences and looking at the underachievements of retirement funding objectives by baby boomers but now we'er getting into behavioral psychology issues. The medical profession has split itself up into specialists as a way to help the public understand who they should be asking what questions of. It's not perfect but it works a heck of alot better than the crazy system were all trying to function within now. And let's be honest and acknowledge that WALL STREET, INSURANCE INDUSTRY, etc have alot more influence than we would like but we need to seek solutions that work within these industry providers. For those readers who have not had the experience of litigating
on behalf of a public investor before a WALL STREET hired lawyer who is trying to justify why the broker should not be held responsible because "THE CLIENT ALWAYS HAD THE RIGHT TO REJECT THE RECOMMENDATION" you are missing a huge part of what cosumers are actually experiencing outside of how a fiduciary definition works or better yet how it does NOT work! AND FINALLY we need to stop letting lawyers have the final word on financial disclosures. The problem is that most people simply don't understand what the actual financial costs are when we use terms like "contingent sales charges", "deferred sales charge", etc.; Let's use a standard the real estate industry uses when disclosing sales commissions, they state the sales cost in terms of dollars and cents-seems to work pretty well.

[Bradly T.]

All great posts and points...except Winks of course, who is again lying about a single standard....there are 5 distinct standards covered by 5 distinct pieces of legislation. Add to those the CPA, CFP, and trustee standards - that makes 8 minimum. Agree that "financial advisor" be banished for ALL - including RIA who are "investment" advisors - not "financial" advisors which presumes a comprehensive planning engagement. So, no agents, no reps, no investment advisors, and no planners - NOBODY is a financial advisor as no such license, registration, or profession even exists!!! Disclose what and who you really are, how you are paid, and your level of services for compensation. Agree transparency and choice are critical elements in creating any standard. A hormonized standard seems far fetched, especially since many existing fiduciary standards are not now, should not be, and will not be subject to any SEC definitions or control.


All agree on acting in the clients' best interest, regardless of compensation methods. Applying a uniform standard and regulatory oversight to that mutual goal will be difficult without diminishing the RIA standard which is NOT acceptable to anyone.

[Lucullus]

Bob,

You began this discussion by posing a question: "Should everyone in the planning profession be

held to one regulatory standard?"

It's a fair question, fairly asked. And I wish you'd stopped right there, because your

commentary on that question was not even remotely fair. In short, Bob, you stacked the deck -

repeatedly.

You began by saying "We're hearing from lobbyists, the Financial Planning coalition, brokerage

firms and the Financial Services Institute, and everybody seems to think that the question is

"all or none'--everybody should be held to one standard, which is either fiduciary or

suitability."

Bob, when did ANYONE ever suggest that "everybody" (every advisor) should be held to a single

standard WHICH MIGHT BE EITHER OF THOSE? Certainly, many critics insist that all advisors should

be held to some form of fiduciary standard, but have you ever seen anyone suggest that all

advisors should be held to the standard of "suitability"? I haven't, because the idea is absurd.

Some advisors act AS FIDUCIARIES and must be held to that standard. Moreover, "everybody" does

NOT "think that the question is "all or none". When has ANYONE suggested that advisors should be

held to NO standard?

You then modified your initial query by reframing it as "should we identify people who are great

salespeople, and fit them into a separate (suitability) regulatory category while everybody else

is held to a fiduciary standard?"

That's an interesting dichotomy: "Great salespeople" on one side, and "everybody else" on the

other. That may reflect your view of this profession, but it does not accurately reflect the

divide and the issue that are at the heart of this debate - namely: (A) INVESTMENT ADVISORS,

acting as such, who are now subject to some form of fiduciary standard and (B) FINANCIAL PRODUCT

SALESPERSONS, who are required to make recommendations that are "suitable"- and the extent to

which (if at all), the latter group should be subject to the standard of care that now applies

only to the former one.

You offer, as an example of "great salespeople", someone whom you suggest we all know -

"somebody who works independently inside of a larger OSJ office of an independent BD. Rather

than doing a financial planning analysis, like most of the other advisors in the office, he

spends his days making presentations about the risks of the markets. (The presentations I've

seen omit the potential benefits of diversification and don't include dividend reinvestment,

which makes the numbers look pretty scary.) Then he sells protection in the form of annuities

and various life products, usually the ones that are currently offering commission bonuses

and/or some temporary bonus applied to client accounts. He routinely wins sales contests."

Gee, Bob, do you think you stuffed enough straw into that guy? Not only does he make only

"presentations" (as distinguished from "financial planning analysis"), but those he makes are

misleading (omitting key elements). And he doesn't just sell "annuities" and "various life

products", but "usually" only such products that offer "commission bonuses" and/or "some

temporary bonus applied to client accounts".

This is your "great salesman", Bob? A fellow who makes misleading presentations and opts only

for the highest commissions and TEMPORARY benefits for his clients? Heck, if he's truly

representative of commissioned insurance salespeople, we can call off this debate right now. A

fiduciary standard isn't necessary, because this guy won't pass muster even under the

"suitability" standard.

This may come as a surprise to you, Bob, but many advisors who sell financial products

(including, but not limited to insurance and annuity products) take "suitability" seriously. We

sell products when they're best for the client. Sometimes those products offer higher

commissions than other products we might have recommended, but ethical, responsible financial

salespeople (and most of us are) recommend them only when they are better for the client. (The

often-maligned "bonus" deferred annuity generally DOES pay the agent a higher commission and

DOES impose a stiffer surrender charge schedule than a "non-bonus" annuity, but it also credits

a bonus to the POLICY OWNER. That first-year interest bonus (a "temporary benefit", to use your

terminology) may or may not be worth the stiffer surrender charge schedule to a given client,

but would any responsible consumerist seriously suggest that an agent must not offer it as an

option, merely because it pays a higher commission? By that logic, no fee-compensated advisor

should be permitted to practice if his or her fee exceeds that of the competition.

This debate doesn't need Straw Men, Bob.

A fiduciary standard that currently applies to a trustee or portfolio manager whose main

responsibility is the selection and management of investments may not work for a financial

planner whose job is chiefly to help a client determine if he or she can achieve stated

financial goals (especially, if that planner has no investment selection or oversight duties).

It's even less likely to work effectively for an advisor whose job is to SELL financial products

and whose compensation is linked solely to such sales AND WHO HOLDS HIMSELF/HERSELF OUT ONLY AS

A PRODUCT SALESPERSON.

Of course, many product salespeople do not hold themselves out merely as salespeople. Many

stockbrokers and insurance agents call themselves "advisors" or "consultants". For those folks,

I believe (and it's just my opinion) some form of fiduciary standard is both reasonable and

appropriate. (Contrary to Mr. Wicks' assertion, there is not merely ONE fiduciary standard;

trust officers and ERISA advisors already know this). Those who suggest that they are

"objective" and "unbiased" must be required to be so. But those who let prospective clients

know, IN NO UNCERTAIN TERMS, that their job is to sell products that are suitable for the buyer

can, and should, be held to only that standard.

- John L. Olsen, CLU, ChFC, AEP

[the observer]

1.Bob Veres stacks the deck...

OF COURSE he does... so does Fox on the right wing and MSNBC on the left. He's a journalist not a practicing financial planner. Bob has his personal opinions and they color his commentaries. Just because Bob writes it, doesn't mean it's "true", or "factual". As an Observer he can express his own opinion, biased or not. Nothing wrong with that, I've NEVER heard of Bob Veres calling himself a "news reporter"... Reporters deal in facts... he's a commentator and as such, can be as biased one way or the other as he likes. If you agree with Bob, buy his newsletter, if you don't, don't buy it... that simple really.

2. John Ohlson writes: "Of course, many product salespeople do not hold themselves out merely as salespeople. Many stockbrokers and insurance agents call themselves "advisors" or "consultants". For those folks, I believe (and it's just my opinion) some form of fiduciary standard is both reasonable and appropriate."

John, In many States, if not all, "holding out as" makes one liable to the same professional standards under State Civil Codes. Problematic is, for the most part, that many are also registered reps and, overcoming the mandatory FINRA arbitration agreement is almost impossible. Once in FINRA arbitration, no one cares about the fiduciary standard amongst the Arbitrators and they don’t publish their findings for scrutiny. What's needed... do away with mandatory arbitration altogether for larger claims and force smaller claims under $25K into American Arbitration Association rather than FINRA. A FINRA controlled panel that doesn't issue findings and makes the rules is still going to favor the professional, period.

There are sufficient laws on the books preventing anyone from holding out (in California at least). New laws will do nothing to prevent obfuscation of a person’s qualifications, ONLY enforcement will do that and the bad guys know there is no money in the kitty for enforcement. Where there is no enforcement, there is no fear. Everyone knows it's all talk, no action.

Great example: In those States that require an Insurance counselor or analyst license, many hundreds of fee-only planners break the law by offering insurance advice for a fee without any form of licensure, particularly in California. The CA Insurance Code Section 1831(e) myth of some kind of exemption for RIA's was busted years ago by the now Interim General Counsel of the CA Dept. of Insurance Patricia Staggs and Assistant Ombudsman and Legislative Liaison Jeffrey Kenny who wrote an opinion rejecting claims by NAPFA and the Institute of Certified Financial Planners a.o..

BUT, some here in the room, still spread the myth as if it were the truth. I personally believe these people should be drummed out of the business. I don't see how you can meet a fiduciary duty without honesty or integrity, much as I don't believe you should call yourself a fiduciary in insurance matters unless you have completed a formal, State mandated course of education and proctored examination and obtained a license, which demonstrates a minimum level of competence and also requires you to complete sufficient hours of continuing education in the business of insurance to maintain that level of competence.

3. Someone still has to explain to me how an insurance "agent" can serve two masters. No one has done it effectively. If I were the insurance carrier, I'd expect my agents to meet their fiduciary obligations to me, period.

I have a solution, the insurance companies would never agree to it, and with all the politicians in the insurance and brokerage industry's pockets, it's pointless to elaborate.

4. If you want to prevent much of the obfuscation, decouple the term “financial planning” from “investment advice”, period! Force a higher standard upon ALL those who seek to hide their true intentions, not just the ones who do so AND are securities registered persons. If you didn’t understand what I just said, it’s pointless discussing the matter.

Tall John and stanquant talk about what the public “really want”. It’s NOT about what the public wants right now… this latest peeing contest in the financial world is about what a small group of individuals want and be buggered the cost!

It’s lots of chatter about creating a profession of financial planning under a single federal agency (unconstitutional) or restricting the term financial planner to those with CFP® Certification (when government by its very nature ONLY creates a minimum standard, not the Gold standard of excellence the CFP Board claims it is) Now, if they’d start again and say, as I have said repeatedly over 20 years, that CFP® Certification should be the “minimum” standard required, it wouldn’t be so bad… Of course, Government doesn’t EVER set the bar that high unless it’s creating a “profession” and that won’t happen in the case of financial planning at the federal level, sorry.

All this talk is just that… a lot of hot air. If the Republican led house approves a lot of nonsense, like they did last time they were in charge, they might just succeed in tripling the national debt and mortgaging every child and grandchild’s future once and for all.

And for all the blah blah blah… Not one person has come up with a sensible projection of what this fiduciary nonsense would cost if extended to America’s sales force, how it would be enforced and what kind of hikes in fees we can all expect, which would immediately be passed on to our clients. I want to hear Republicans and Democrats answer a few of those questions first.

[Bob H]

1.Bob Veres stacks the deck...

All this talk is just that… a lot of hot air. If the Republican led house approves a lot of nonsense, like they did last time they were in charge, they might just succeed in tripling the national debt and mortgaging every child and grandchild’s future once and for all.

Total Spending Year GDP-US $ billion Total Spending-total $ billion 1995 7,414.70 2,634.87 1996 7,838.50 2,719.43 1997 8,332.40 2,813.59 1998 8,793.50 2,923.39 1999 9,353.50 3,053.51 2000 9,951.50 3,240.18 2001 10,286.20 3,434.00 2002 10,642.30 3,697.75 2003 11,142.10 3,930.63 2004 11,867.80 4,127.66 2005 12,638.40 4,397.46 2006 13,398.90 4,698.31 2007 14,077.60 4,924.61 2008 14,441.40 5,335.25 2009 14,258.20 6,034.60 2010 14,623.90 6,412.71 2011 15,299.00 6,712.52 2012 16,203.30 6,832.47 2013 17,182.20 7,205.15 2014 18,192.60 7,677.00 2015 19,190.40 8,142.24 Legend: a - actual reported b - budgeted estimate in US fy11 budget
Gross Public Debt Year GDP-US $ billion Gross Public Debt-fed $ billion 1995 7,414.70 4,973.98 1996 7,838.50 5,224.81 1997 8,332.40 5,413.15 1998 8,793.50 5,526.19 1999 9,353.50 5,656.27 2000 9,951.50 5,674.18 2001 10,286.20 5,807.46 2002 10,642.30 6,228.24 2003 11,142.10 6,783.23 2004 11,867.80 7,379.05 2005 12,638.40 7,932.71 2006 13,398.90 8,506.97 2007 14,077.60 9,007.65 2008 14,441.40 9,986.08 2009 14,258.20 11,875.90 2010 14,623.90 13,786.60 2011 15,299.00 15,144.00 2012 16,203.30 16,335.70 2013 17,182.20 17,453.50 2014 18,192.60 18,532.30 2015 19,190.40 19,683.30 Legend: a - actual reported b - budgeted estimate in US fy11 budget Looks to me like the Dem controlled Congress has set the records for spending and debts. Perhaps thats not spelled out on DailyKos.

[the observer]

Bob H... ROL LOL

Except... Congress was well in Rep. hands between 2000 and 2006, they attacked a country that had nothing to do with 9/11, held hands and kissed Saudis king, though 16 of the 19 were Saudi, and doubled the national debt, throwing us into the worst recession since the great depression... Selctive memory or Alzheimer's, take your pick...

[Bob H]

Bob H... ROL LOL

Except... Congress was well in Rep. hands between 2000 and 2006, they attacked a country that had nothing to do with 9/11, held hands and kissed Saudis king, though 16 of the 19 were Saudi, and doubled the national debt, throwing us into the worst recession since the great depression... Selctive memory or Alzheimer's, take your pick...

The Dem's are channeling Jake Elwood............... "It's Not my fault!!!!!!!!!"

OK... 4 years the the Dems are (according to you) unable to do anything. Good thing we're getting rid of them.

Bob

[the observer]

Republicans... can't live with 'em, can't live with 'em.

[Lucullus]

Observer,

I did not claim that Bob Veres violated a duty to be impartial. I did, and do, claim that constructing false dichotomies and straw men does not advance understanding of the issues.

Bob could have pointed out that those who sell financial products are held to a lesser standard of care ("suitability" vs. "fiduciary"), that consumers dealing with an advisor generally do not know if that advisor is obliged to put the consumer's interest first, that investment advisors acting as such must disclose compensation but salespeople acting as such are not, and that consumers dealing with advisors who (like many of us) can act both as "mere salesperson" and Investment Advisor (depending upon the situation) do not know what rules govern our dealings with them.

Instead, he portrayed the debate as having to do with two kinds of advisors - "great salesmen", who, in Bob's vision, "usually" sell "commission bonus" insurance products , and "the rest of us".

Bob, if your goal, in hosting this debate on this website, is to foster serious debate on these issues and to "tap the deep wisdom of the crowd to help us resolve important, complicated issues", then perhaps a BALANCED presentation of those important, complicated issues would be helpful. You don't "tap the deep wisdom" of people by presenting them with distorted pictures and biased explanations.



- John L. Olsen, CLU, ChFC, AEP

[Bob H]

Republicans... can't live with 'em, can't live with 'em.

Fortunately for you, you are in California (if I recall) where the GOP is not allowed. I'm in Illinois where the GOP is also not allowed. You think there is any co-incidence to the fact that our two states are the closest of the 50 to bankruptcy?

[the observer]

Bob,

Simple answer, we have a lot of poor people who need help, and we still try to give it to them. At least in our two States we spend American taxpayer dollars in America. Not all of it, unfortunately goes to poor "Americans"... a lot may go to illegal immigrants but immigration is a federal thing and neither party has a clue how to solve the problem. Republicans want to ship 11 million back without thinking about the cost, or that they'll just travel back here again anyway. The Dems want a Reagan style amnesty, which many will interpret as, let's go to America now and wait for the next amnesty. It's a mess and it's time for all Americans to face the fact that neither one of these parties is ever going to do anything but make promises and then bend us all over.

Hi John,

It wasn't an "accusation"... relax! My point was in line with yours, Bob Veres isn't a news reporter, his opinions are colored by who he hangs out with and his own Weltanschauung, that's all. Personally, I think he should reach out and talk with people he doesn't agree with, but he won't do that because he lacks the respect for the other opinion that reporters would have to get both sides of the story.

You are absolutely right, Bob should have just asked a question. He steers the conversation, like many commentators, to fit his idea of how the story will eventually read and often discounts valid opinions because "his friends" would frown on any deviation from the path to fee-only fiduciary domination that they set him on many years ago. Bob had the chance to think about relationships in the past and got really upset when his "friends in high places" froze him out in 98/99, but he really hasn't ever been open to changing his opinions or accepting new ideas and enthusiasms.

It's pointless taking a contrary position, because people like Bob have the power of a publisher behind them. Unless you can get published, you can't possibly hope to present another more balanced opinion. I can get published, but publishers don't want to pay for contributions. Bob gets paid to sit for hours and think about stuff, good luck to him. When the money's there to pay people like us to sit and think, I'll think about publishing again.

Personally, there is way too much hot air being generated by people that don't have the "back story" and politicians just want to line their pockets and keep the debate going for as long as possible to cash in from lobbyists. This whole thing hasn't even started getting interesting yet. It's time for the haters and commentators to get a life and realize just how inconsequential their opinions are against the money that flows into Washington's back pockets to maintain the status quo.

Two important questions won't be answered by Bob or anyone else. If they pass one uniform standard, how will the poor and middle class cope. (Actually that's not quite correct) In Investment Adviser this month, one prominent fee-only planner as good as said, let them eat cake... or to paraphrase her, there's always internet tools and software... Shades of Evensky's push for CFP BOARD Gold seal stamped software for poor people while the elite get a real "live" person.

The second question that will never be answered is... how will Congress pay for enforcement of all this nonsense down to the small man? More borrow and spend???

I can't find anyone who has written a thoroughly honest and balanced opinion on the true State of financial planning today. I haven't found a single thoroughly honest and balanced opinion on maintaining one standard or two and we won't get one from Bob or anyone else. He's as colored by special interests as politicians are. As he found out in 98/99, if he doesn't play ball, he doesn't get access. Anyone who read Bob's article from back then could see how upset he was at being left in the cold... but the lesson wasn't learned.

[craig]

After reading Curt Weil's excellent reply, I will agree with all he said. Thanks Curt. I hope you or your reply are passed on to the regulators who can use it to the public's best interest.


Another thought about all this is that we have had the distinction of fiduciary under the 1940 Act in our law for 70 years. By my understanding, all RIA's are by that law held to a fiduciary standard.



What I heard is that Obama wants all advice now to come under the description of fiduciary. So it seems that we are suddenly attempting to put 1933 Act sales people under the 1940 Act defining fiduciary. I will say that this change is not possible. The reason the 1940 Act was created was because some very smart people back then recognized the difference between sales and advice. That difference has not gone away because of Obama's political desires or Shapiro's ineptness.



It seems if Shapiro wants to do something to protect consumers, it would be to promote the differences under the existing law. Let the public know where to go to get whatever it is they want.

Let the public decide if they want a fiduciary or not.



It seems the worst choice would be for Shapiro to change the distinction of fiduciary to allow sales people to sell and still claim to be fiduciary. Then the public loses their freedom to choose. It seems Shapiro's ineffectiveness in her job at FINRA has not diminished her new potential at the SEC to really screw up the works by changing fiduciary to fit in a sales presentation.

[BobVeres]

I guess I should start out by saying I'm genuinely confused about The Observer's comment, saying that something significant happened to me in 1998-99. If you want to explain further, either in this forum or in a private message (bob@bobveres.com), I'd be interested to hear about it.

I was even more confused about my alleged influence and all the publishing power behind me. I write a column for Financial Planning, and sell a newsletter service, and I can tell you from personal experience what you already see here: people have no compunction whatsoever about disagreeing with me, correcting me, finding flaws in my facts and opinions. In my experience, you tend to have as much influence as you deserve, and in that regard, I have my good days and bad days.

More important to the discussion is John Olsen's comment that I stacked the deck in my presentation of the issues. He presents solid evidence that my assessment was flawed, or lacked his real-world experience--but that's the point of this forum, to take a question, analyze it from every angle, and then figure out what we know, collectively, that is greater than what was originally posted.

John seems to be saying that a fair-sized subset of the people who are compensated by commissions actually do, as a matter of routine, put the interests of their clients before all else. (I think he's entering himself into evidence here...) Careless language aside ("the rest of us" looks unfortunate in hindsight), what I was trying to say was similar to what Curt Weil is saying here: that there are people who, as a matter of business routine, put the client's interests first, and people who, as a matter of business routine, encourage people to buy the products they represent. I remember a sales brochure published by one of the larger insurance companies some years back which listed a wide variety of financial challenges, and then told the agent to recommend a life insurance policy to solve each one of them.

THAT is the mentality that I was trying to capture, and in retrospect I regret lumping everybody who primarily lives off of commissions into this category, or getting into the details of what personal interests the non-fiduciary-minded agent might have acting on. THAT doesn't really matter; what matters is that some people ARE acting on interests that are not closely related to what the client needs. Curt offered some client horror stories that resulted from this mismatch of interests, and I suspect that John Olsen could offer his share over a glass of wine or beer.

So to start fresh: we have two rough subsets of advisors with different motivations and business practices, which we might call fiduciary and sales, and a muddy, confused section between them where sometimes an advisor will sell something, sometimes act as a fiduciary, wearing different hats on at different moments in the same client meeting.

The debate seems to be about clearing up that confusion, and there are several ways to do this. One is to make everybody live up to one standard. But since most of the confusion exists in the middle, another would be to have two very different standards, and some clarity about what the consumer can expect from each one--what Dave Ehrenthal called, I think correctly, "transparency."

The question I was trying to get to was: why try to do this with one standard? Why force people with sales training and a non-fiduciary orientation to become fiduciaries in order to practice their craft?

You have one side arguing that suitability is the right way to go, for everybody, another side arguing for fiduciary. My original question, asked fairly or not, can be amended here to: Is there some procedural, moral, ethical or practical reason why we can't create two standards, and clearly identify the people on the suitability side as product vendors and advocates, and people on the fiduciary side as sellers of professional advice?

Dr. Dame, you asked the killer question: how does this relate to compensation? Are fee-only on one side of this divide, by some automatic mechanism, and people like John on the other side, again without regard to any other standard? And how can we justify that when we all know examples of great people earning commissions and questionable people who have never taken one?

For the sake of the argument, and to further validate those who question my lack of objectivity, I would suggest that so long as a practitioner has, in his/her business practices, a financial incentive to churn accounts or recommend unsuitable investments, he or she is not taking an important step to becoming a fiduciary. John Olsen, based on my understanding of your practice, you would not qualify; you would have to be satisfied with being regarded as an extraordinary insurance representative--and, of course, my straw man, as you called him (with some justification) would be an example of a somewhat LESS extraordinary one.

However, I think commission-compensated advisors with long-term client relationships could still meet the definition by taking fully-disclosed level annual compensation for all services, regardless of product recommendation, and then offset that compensation by whatever commissions are generated.

TDJ asks whether the fiduciary standard applies to every recommendation the advisor offers. I think if you go back and reread what Steve Winks is saying, the answer is probably "yes," but I don't expect the regulators to spend a lot of time monitoring anything but the investments. When Steve said there was one fiduciary standard, I suspect he was talking about the procedural hurdles that have to be created to meet the DOL regulations, which would be a safe harbor for anything the SEC is likely to come up with.

For those who are arguing about whether the Democrats or the Republicans are ruining the country, I want you to know that your partisan bickering is ruining this discussion. There are better places to rail against each other than this. But if you want to entertain yourself about our deficits and why it would be helpful if both sides stopped bickering, take a look at the Debt Clock (http://www.usdebtclock.org/), which is surely one of the most depressing, entertaining things you could encounter.

Thanks, sincerely, for the feedback.
Bob Veres
bob@bobveres.com

[the observer]

Hi Bob,

I remember reading your newsletter back then while the CFP Lite controversy was still in full swing, which expressed your frustration at certain of your contacts within the community (Evensky among others) who just clammed up when you wanted information. Please review your newsletters from back then, I'm sure you'll find what I alluded to.

As far as your other comments... it's 6:52am here and I haven't had breakfast yet... I'll get to them later.

[the observer]

Hi Bob,

More on your comments:

“I remember a sales brochure published by one of the larger insurance companies some years back which listed a wide variety of financial challenges, and then told the agent to recommend a life insurance policy to solve each one of them.”

Yes, and I remember being at a sales meeting where the trainer of some new life insurance agents proudly held up a letter he wanted the newbies to use, which among other things, claimed they were all “experts” in retirement planning. I subsequently contacted the Western Regional Director of the carrier, shared the applicable CA Civil code statute stating that people who hold out as experts are held to the prudent expert standard, informed him that newbies couldn’t possibly be experts and he agreed to stop using the letter because of the potential liability. Did he stop using it, probably not…

But the greater question here is… when was the last time you, Bob, actually got in on the ground floor and asked people like John Ohlson for a ride along to see how things are really done, investigated the real world challenges agents really face? Other than buying your own life insurance to cover your family, how deep have you really studied the issue whether life agents do the right thing Bob??

You then write: “We have two rough subsets of advisors with different motivations and business practices, which we might call fiduciary and sales, and a muddy, confused section between them where sometimes an advisor will sell something, sometimes act as a fiduciary, wearing different hats on at different moments in the same client meeting.”

This makes further assumptions that upset me. IMHO, there is only “muddy confusion” in the minds of people who don’t have licenses and break the law by offering fee-only advice in the business of insurance without any State mandated minimum ascertainable standard of education, examination and licensing in the many States that still require analyst and counselor licenses. My clients are VERY clear at all times in what capacity I’m serving their needs. If you don’t like the way insurance is offered in America, frankly, neither do I… but I’ll comply with the law while others break it and retain my life agent license. I’ll continue to disclose any and all potential conflicts of interest. I will NOT, however, break the law because I do not believe it to be “more honorable to be a little civil disobedient”, particularly when in CA for example, it’s a crime punishable by jail time and fines. Bob, I’ve always seen you lean to the fee-only side, I’ve never seen you nail them down on the issue of unethical insurance planning and how that fits into their “fiduciary” way of thinking. You want to do something good for the industry and clean up the business, start working BOTH sides of the issues for a change.

You are right to ask the question: “why try to do this with one standard? Why force people with sales training and a non-fiduciary orientation to become fiduciaries in order to practice their craft?”

Unless there is a fundamental change in the way insurance is offered in America and frankly the world, there will be no change, there will always be muddiness and confusion, and any attempt to stick a band aid on it with something like a single standard will just make everything more expensive. Trouble is, any “real” fix by changing the way insurance is offered is also never likely to happen in America because the insurance lobbyists are too powerful and Congress is morally and ethically bankrupt.

You write: “Dr. Dame, you asked the killer question: how does this relate to compensation? Are fee-only on one side of this divide, by some automatic mechanism, and people like John on the other side, again without regard to any other standard? And how can we justify that when we all know examples of great people earning commissions and questionable people who have never taken one?”

Unfortunately, you then go on to write: “ For the sake of the argument, and to further validate those who question my lack of objectivity, I would suggest that so long as a practitioner has, in his/her business practices, a financial incentive to churn accounts or recommend unsuitable investments, he or she is not taking an important step to becoming a fiduciary. John Olsen, based on my understanding of your practice, you would not qualify; you would have to be satisfied with being regarded as an extraordinary insurance representative--and, of course, my straw man, as you called him (with some justification) would be an example of a somewhat LESS extraordinary one.”

John is a CLU, (Chartered Life Underwriter) ChFC, (Chartered Financial Consultant) two designations awarded by the American College to professionals in the insurance industry. Thousands hold one or both of these designations. This, in addition to thousands of life agent licensed CFP Certificants.

QUESTION Bob, WHY do you consider John to be an “extraordinary” insurance representative??? Because he published a book?? John, I’m sure would agree with me that there are thousands and thousands of “Johns” all over America doing the right thing for their clients every day, but you’ve never really looked that hard IMO Bob. See my challenge above, Get out there, go for some ride alongs, see how things are done when they are done properly. When you’ve seen how well things can work, I’ll be more than happy to show you how the scumbags operate, on both sides of the aisle.

Next you offer a potential solution: “However, I think commission-compensated advisors with long-term client relationships could still meet the definition by taking fully-disclosed level annual compensation for all services, regardless of product recommendation, and then offset that compensation by whatever commissions are generated.”

It shows that you really don’t understand some of the constraints many life agents live by. Setting aside the analyst / counselor license issue for a moment… many life insurance carriers strictly prohibit the rebating of any commission back to a client with the agent agreement. What you are asking may be impossible for some unless the insurance industry changes the way it does its business. Changing to a much fairer model would, however, bump everyone’s premiums and then the complaining would start in earnest.

To Stephen Winks… He has often written that there is only one standard, the Federal ERISA fiduciary standard, and he believes if I’m interpreting his numerous comments here in the past, that this single standard already applies to the insurance and securities industry as well as State registered Advisers and registered reps… Do you believe that Bob??

And as far as partisan bickering is concerned… I’ve yet to see ONE person from either side show me a set of numbers that will justify enacting a whole bunch of new regulations when:

[list=1]
[*]Sufficient regulations exist to prevent much of the abuse
[*]Statutes are ignored daily because everyone knows there will be no enforcement due to lack of funding.
All these regulations serve only to punish severely those who are unlucky enough to get caught after many years, like Madoff. For most of the shysters, they move on a long time before and live out their lives in gated communities. Don’t believe me Bob, I can show you some perfect examples of both one and two.

If you REALLY want to get serious about writing something worthwhile on this topic Bob, take up the challenge, ask John and a few others whether you can look over their shoulders, look at the “dark side” of both commission and fee only based business and then put something together you can really defend as being unbiased, because you did the necessary leg work.

Of course, I’ll understand if you don’t, it would cost a lot of money to do the background required and payment for articles, even for the Bobs of this world still won’t cover the expense.

Disclosure: I’m a State Registered RIA and Life Agent with no ties to FINRA and fee-only in my investment advisory practice. 25 years experience. I am a fiduciary, but, like many other fiduciaries out there, I believe too many people make assumptions about how things are done when they’ve never been there.

[Stephen Winks]

For the sake of clarity, fiduciary responsibility is based on objective, non-negotiable criteria of statute (ERISA, UPIA, UMPFA, UMPERS and The 40 Act), case law and regulatory opinion letters--all rules based regulations embraced by FINRA the likely but unpopular regulator of advice (vs Principles based regulation used by the FSA in England and prefered by the SEC). In order to provide personalized advice (essential for life insurance sales for those following the comments of the Observer, Bradley T and John Olsen (Lucillus)) one must choose to act in a fiduciary capacity if they are to be advisers. In England 70% of insurance agents left the insurance business because they could not meet accountability and transparency in cost and compensation tests required for advisers. Fiduciary standing is simply achieved by subscribing to the objective non-negotiable fiduciary criteria of statute, case law and regulatory opinion letters. There is no arguement about what is entailed, except that insurance salesman are used to working under a suitability standard where they are not accountable for their recommendations nor are they required to manage product cost on behalf of their clients in their best interests, nor are they required to disclose their compensation. Dodd-Frank does not allow one to represent that they are acting in the best interest of their client or claim fiduciary standing unless they are accountable and transparent in cost and compensation.


Essentially, by interjecting objective non-negotiable criteria for fiduciary standing, unethical (in the context of fiduciary standards) but legal practices under a suitability standard become illegal. Thus fiduciary standing is actually very clear and easy to execute if one wants to be an adviser who acts on behalf of the client in their best interests.



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[john henry]

The "standard" applied is of no interest to the consumer. Give me transparency any day. Full disclosure of all costs and commissions in a format that is understandable and unified throughout the industry.
Changing standards won't change bad behavior.

[Stephen Winks]

John Henry,


Couldn't agree more. The problem is accountability and transparency are never voluntary, thus the need for clarification and rules for the road.



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[mickeycfp]

Hi Bob,
Good topic for sure. I think the answer is easy. If you want a profession, then one standard only which would be Fiduciary based. If you want a sales business, then it's suitability.

Regards,
Mike C

[the observer]

Mr Winks writes: "In order to provide personalized advice (essential for life insurance sales for those following the comments of the Observer, Bradley T and John Olsen (Lucillus)) one must choose to act in a fiduciary capacity if they are to be advisers."

So for the sake of clarity... you do not believe that fiduciary duty applies to insurance agents, but rather, insurance agents must choose to act as fiduciaries, am I understanding you correctly?

I'm assuming then, you agree with Errold Moody and others in California that those who act illegally in the business of insurance by charging a fee for fiduciary insurance advice without first obtaining a life analyst license are criminals that should be drummed out of the business. I'm further assuming you disagree with Curt Weil on this, who is still propagating the myth that fee-only advisers can operate under an exemption, which doesn't actually exist according to the CA Dept. of Insurance.

I'm sure this is not easy, because you've agreed and supported Errold Moody AND Curt Weil in the past, I'm wondering where you stand on this Mr. Winks.

If you agree with Errold Moody, explain how breaking the law and committing a crime in CA gels with being a fiduciary. If you don't agree with Errold, but rather with Curt, maybe you can be the first to elaborate on this mythical exemption that fee-only advisers claim in the business of insurance to flagrantly violate CA criminal statutes? If you do so, you'd be the first to challenge many published articles on this topic by many planners in CA.

Lwet me take a contrary position as an advocate for the "consumer" now:

How DOES double dipping, overcharging or charging a consumer twice on most of the work a financial planner does gel with "fiduciary" duty. After all, a financial planner offering estate planning can't draft documents unless he's a lawyer, so the client is charged twice for that portion of the plan. A financial planner can't file tax returns so the client is charged on the implementation and probably pays twice for that portion of the plan because a CPA is not going to take the financial planner's word for it... a fee-only adviser may charge a fee (albeit illegally in many states) for the insurance advice but somewhere along the line, the client has to see a licensed insurance agent to purchase the insurances and so the client pays twice for that portion of the plan because the cost of paying the licensed life agent is built into the plan.

Seems to me Mr. Winks, and everyone else, that the only portion of a financial plan the client DOESN'T end up paying twice for is the securities and investment advice. This is given of course, not as a financial planner, but rather as a Registered Investment Adviser.

So to summarize if I want to take a contrary position to continue the debate, for all the talk it seems that financial planners spend most of their time double charging clients for things they are not licensed in many cases to actually "implement". Doesn't this kind of double dipping and overcharging breach some kind of fiduciary duty to the client?? Wouldn't a fair disclosure before signing be "You might end up paying far less for your financial plan if you see an accountant for your tax advice, an attorney for your estate planning advice and a licensed insurance agent for your insurance advice."

In conclusion as the "consumer advocate" this morning: Isn't financial planning then really just about gathering assets to manage, more than anything else, for most financial planners who are not EA's, CPA's insurance agents or attorneys.

What needs protecting here??? The term "financial planner" perhaps, to be used only by the elite, while the poor and middle class as one famous NAPFA planner recently is quoted as saying in the current edition of Investment Adviser, should turn to the Internet and punch the numbers in or buy some software?????

And one asks where the CFP Board lost their way??? Exactly here!!!

[jay]

To mickeycfp, I couldn't agree more. Until the "consumer" sees us as a profession that can be trusted like CPAs, attornies, etc, we will always be viewed mainly as salesman. I for one, do not wish nor do I put my self out as a salesman. I obtained my CFP and have spent years crafting my ability in part to be seen as a professional.


Jay

[Stephen Winks]

The observer,


There is nothing inconcruent here. It is simply your choice whether you act in a fiduciary capacity or not. If you are to become an adviser and act in the client's best interests under Dodd-Frank, there are common practices today which are acceptable under a suitability standard which are not under a fiduciary standard. Thus, if you are to craft insurance solutions for specific clients that constitute personalized advice, which is almost invariably the case,--you must be forever accountable for how effective that recommendation is and you must be transparent in the cost of your recommendation and your compensation. If you choose not to do so then you are not an adviser working on behalf of your client, acting in their best interest. It's that simple.



Most of the 30% of life insurance agents who have stayed in the business in England have gone to a fee model.



With regard to Errold Moody, Phd, attorney, expert witness in insurance related matters, Errold is simply citing the legal construct in which you work as an insurance agent there in California. I defer to those of you who understand the specific nuances of California law. I understand the California Life Analyst License is a daunting test, perhaps you have taken it.



As for transparency in cost I could not agree more. I don't see what you refer to as double dipping by any adviser I am familiar with who is acting in a fiduciary capacity. Perhaps you are more familar with that practice than I am.



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[Lucullus]

One problem that many advocates of a "single standard" seem to overlook consistently is that there isn't always just one duty - that of the advisor's duty to the consumer - to consider. Many financial advisors recommend insurance products. Such products may be sold only by those who have signed agreements with the issuing insurers and who will act, under those agreements, as AGENTS of those insurers. One may insist that the duty those advisors have to the consumer/applicant must meet a fiduciary standard, but that will not alter the AGENCY duty that those advisors have to the insurance company.

As to the duty of the advisor to the consumer, many advisors, including yours truly, live in "two worlds". When we act as an insurance agent (selling an insurance product) and/or a registered representative (selling a product registered as a security), we must recommend only products that are "suitable". That "suitability" standard is still evolving. For example, the NAIC Suitability In Annuity Transactions Model Regulation, approved in March, 2010, will apply to ALL agents selling ANY annuity at the sooner of (a) the adoption of that Model Regulation by the state in which the agent lives OR in which the applicant lives or (b) the adoption by the insurer issuing that annuity of suitability standards no less stringent than those of the Model Reg. The 12 Concerns listed in that Model Reg. are essentially the same as those applying to variable annuities, and enunciated in NASD Rule 2821 (now FINRA Rule 2330).

When we act as Investment Advisors, we bear a form of fiduciary duty, under the Investment Advisors Act and case law applying that act to our activities. But when we are selling an insurance product, we are also subject to the duty to the issuing insurer imposed by our agent's contract. Advocates of a "harmonized" standard often fail to understand this simple fact.

Moreover, the issue is not so simplistic as "if you're a fiduciary, you must act in the client's best interest and if you're not, you don't have to". That's a false dichotomy that makes sense only to those who insist in viewing the world in digital terms (where everything is either 0 or 1). Or who are incapable of believing that any position other than their own can have any validity.

Another problem is the unspoken assumption, on the part of those who advocate a single standard, that the rules ought to be the same for all advisors because we're all engaged in the same activities. That's simply not so. The responsibilities and activities of a portfolio manager or trust officer are NOT the same as those of an insurance agent recommending insurance products, or even the same as the responsibilities and activities of a financial planner who neither recommends nor manages the client's portfolio. Any "harmonized" standard must, if it is to work properly for all concerned, accomodate the differences in how different advisors work.

Certainly, there is need for clarification of what an advisor's duty is to the consumer, for consumers who deal with those advisors who work "in both worlds" (who act, in some situations, as a product salesperson, and, in others, as an investment advisor) need to know which hat the advisor is wearing, and what duties are imposed by his or her wearing that hat. Insurance agents who, when acting as insurance salespeople, ought not to hold themselves out as anything else, and should be held to the standard applicable to an investment advisor when they suggest (even by implication) that they are acting in that capacity.

Such dissonance does call for "harmonization". But to insist upon a single standard, just because it's simpler to understand, while ignoring the incongruities that such simplification may create, does no one any good.

- John L. Olsen, CLU, ChFC, AEP

[the observer]

Hi John,

Nobody, as I've expressed before here, has properly explained how one can meet an agency (and as such "fiduciary") duty to the insurance carrier AND a fiduciary duty to the client.

One simple way would be to have every agent appointed with every company in the U.S. Prohibitively expensive but would provide the agent with a full palette of products. Of course, you'd also need to do away with captive agents at Allstate, State Farm and the like AND you'd need to understand EVERYONE's products. Ridiculous and impractical.

One better way would be to allow insurance agents to become licensed, mandate continuing ed and let them offer insurance advice for a fee, period. THIS however, would require insurance companies to rethink their entire product catalog and reprice everything, removing the cost of the commissions from all products and simply not paying a commission, period. Hands up anyone who thinks this will happen, even if it is a good idea???

Mr. Winks, please provide us with a link to the statistics you are quoting on the U.K., I'm genuinely interested since I'm also licensed to own a practice in the European Union and while I remember the financial reforms, I haven't really seen the mass exodus of 70% in my annual travels to Europe.

One other point Mr. Winks...

You write "If you choose not to do so then you are not an adviser working on behalf of your client, acting in their best interest. It's that simple."

I don't see it as being "that simple"... I may be an agent for a number of carriers, but it is still quite simple to work on behalf of my clients in their best interest. I don't have to be a legally defined "fiduciary" to do so, I just have to have sufficient character, integrity and ethics. Distinguish between fiduciary "obligation" and "acting as"... Some have the obligation and misbehave, some do not have the obligation and still act as. If you can accept this notion we've come a long way in a short time. If you cannot, then you belong in the camp of people who believe that all sales people who earn commissions are scum... a position I cannot and never will agree with.

[Stephen Winks]

the observer,


As you and John Olsen so clearily state, you have a fiduciary duty to the insurance company you represent, not the consumer. Pretty simple. But Dodd-Frank requires you to have a fiduciary duty to your clients. You have to choose which is more important your fiduciary duty to your insurance company or your client. In England the insurance industry came around and the client's best interest prevailed, which is probablly how things will play out here.



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[the observer]

Mr. Winks,

As far as I'm aware, Dodd-Frank does not apply to the the provision of advice in the business of insurance. The business of insurance is, constitutionally, "State" and not federal business. If you can list provisions of Dodd Frank that specifically reference the business of insurance I'll be happy to review them.

No court will uphold any provision of any law that places the insurance agent in a position that will allow an insurance carrier to sue for breach of fiduciary duty if the agent chooses (your word) the client, or the client to sue if the agent chooses the company. It would be a law that creates an absurd and unintended consequence. No law can be written with a "damned if you do, damned if you don't attitude and expect to withstand legal challenge.

IF you want a sensible solution, it is time to embrace the introduction of a federal "Uniform Statute", to be incorporated into each State's business and professions code. that would establish a profession of financial planning where it constitutionally belongs, at the State level. Insurance regulations could then be modified and with a few tweaks, one could enable fiduciary status in the business of insurance. To do this, everyone would need to embrace the ideas I've been promulgating for many years already.

However, the opposition to these ideas is great because the loser in all this may well be NAPFA and the CFP Board.

I'm still waiting for anyone else to address my consumer advocated questions above... or is it just too uncomfortable for financial planners to think about??

[Stephen Winks]

The Observer,


Insurance will simply be offered by advisers who actually act in the clients best interests if insurance agents can not. Insurance companies have a vested interest in supporting advisers. You can continue to act in your insurance companys best interest rather than that of the consumer, the consumer will simply have a faster, better and cheaper alternative with the adviser. This natural evolution has already occured in England.



Agengy relationships with brokerage firms and insurance companies where the broker has a fiduciary relationship with the broker/dealer or insurance company rather than the consumer determines whether the broker/agent is an adviser. You can't serve two masters. Either you are acting in the clients best interest in a fiduciary capacity or you are not. Consumers are smart enough to determine if you are acting in their best interests or not. In England, most insurance agents are now fee based advisers as competing advisers have made made accountability and transparency in insurance product cost and adviser compensation a point of differentiation.



State regulators are in support of the fiduciary standing of brokers and have been way ahead of the SEC and FINRA in this regard. Statutory requirements for fiduciary standing are already established and accepted in all 50 states under the Uniform Prudent Investor Act (UPIA).



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[the observer]

Mr. Winks,

This brings me back to my question regarding the illegal activities of fee-only advisers in the business of insurance, which you have deferred to others on... Of course, the others aren't answering because the questions are uncomfortable.

So really, what's happening right now is, insurance agents are maligned for being "agents" while insurance advisers in many States that are acting outside the law in acts of what many of them term "civil disobedience", are being praised as pioneers.

Most ethical and definitely conduct becoming "fiduciaries"... NOT

[BobVeres]

My gosh, so much anger, hostility, frustration. I hardly know where to start to make sense of it all.

I guess I'll offer a quick comment about the CFP Lite controversy; some of you may remember that I was right on the front lines of that controversy, and what I wrote at the time was that I and a lot of others were feeling deceived by the CFP Board, and betrayed, and ultimately we rose up and beat the initiative back, and I'm proud to have been a strong voice in that process, both in public and behind the scenes. It was not, however, a time of personal anguish; I was very clear about where I stood, and tried to give voice to how we were all feeling at the time, which I think the CFP Board needed to hear, and the constituents wanted to shout from the rooftops. It was a very different CFP Board back then...

But let's go back to the topic at hand. The Observer strongly implies that I don't understand anything about life insurance, and I confess that these days I only talk to a few people who are strongly in the sales model. Over the last few years, most of my research into insurance has been conversations with actuaries and others who are helping me deconstruct the variable annuity guarantees, and the conclusion I've come to is that the insurance companies are making a lot of money on those puppies, and not doing a very good job of disclosing to consumers what they're buying.

My sense from past experience with some excellent insurance agents, and with the people I talk with today, is that insurance may be a different field altogether from financial planning and investment advice. I said in my newsletter a couple of years ago that risk pooling is one of the great inventions of humankind, and somehow the concept has been mucked up with asset gathering. I, personally, would like to see people hold themselves out as risk pooling (or risk management) professionals, and have the public realize that life insurance, annuities, health insurance, auto and homeowners insurance take the rough edges off of the human (financial) experience. This, too, could be a fee-compensated activity.

But the way insurance is now (and this addresses the long discussion between Steve Winks and The Observer), I think the fiduciary standard would be misapplied to this field.

I'll throw in one more comment about the Errol Moody controversy: the fee-only planners that I know simply calculate the life insurance need based on their clients' lifestyle and then send them to an agent they know, with a bias toward term coverage unless the agent spots something unusual. The agents are delighted to get this business; no marketing, the case already has the facts and figures in place, and there's a professional set of eyes in the decision loop. If a new client owns a policy that they're uncertain about, they'll call an agent in for a second opinion.

So the question still remains: one standard or two? Maybe the question has evolved to: should RIAs be held to the fiduciary standard and insurance agents to the suitability standard? Or are there circumstances when insurance agents can (or are motivated to) meet the fiduciary standard?

Bob Veres

[the observer]

Bob,

anger, hostility... where do you see that... you obviously haven't been on the B Boards for a while. I think everyone's being quite civil at the moment!

you write: "I've come to is that the insurance companies are making a lot of money on those puppies, and not doing a very good job of disclosing to consumers what they're buying."

QUESTION: Have you ever asked a life agent whether an insurance carrier has ever, or would ever deconstruct and fully disclose this information to a "life agent" let alone a consumer, or whether there's even an obligation on the part of the insurance carrier to do so? Seems to me, if you're hanging out with actuaries to get that information, the answer is NO...

The only company I know that deconstructs policies is Jefferson National with their flat fee $20 a month VA and it's the only one I use personally. However, because I hold a life license and still make a commission on the sale of term life insurance or long term care, something you can't really offer without earning some form of commission as you are generally not allowed to rebate back to the customer under most agreements, I cannot call myself a "Fee-Only" planner according to the CFP Board?!

The CFP Board understand as much about insurance and the way its offered as you do Bob... BUT, they STILL just informed every CFP® Certificant that they must act as fiduciaries when offering insurance if they wish to maintain their CFP® Certification. Of course, they didn't explain how that was supposed to work. And you wonder why people might be a little hostile even though we're holding back for your sake?!

You also write: " I only talk to a few people who are strongly in the sales model" How many "no-load" no surrender charge insurance products out there Bob, versus the commissioned products. And you spend your time by your own admission with the fee only crowd, who "supervise", "oversee" and "approve" the process of the purchase of insurance... That's a crime without a life and disability analyst license in California, sorry Bob. I can produce the statute that says it's a crime, would you like to publish a list of people who do this that you are in touch with Bob??

You also write: "insurance may be a different field altogether from financial planning"... Tell that to the CFP Board who has incorporated risk management (insurance) training into the Certification marks from day one, declared that it is a financial planning subject area, demanded that insurance agents be fiduciaries to the clients and are now threatening to rip the Certification of anyone not acting as if they were a fiduciary to the client in an insurance "transaction".

Stupid after Stupid after stupid Bob. So, does the CFP® Certificant just surrender his CFP® Certification for not being a fiduciary to an insurance transaction client, OR, does he abide by the real "law", (you know, the one that counts where you don't get your licenses to practice ripped) in adhering to his agency contract with the insurance carrier and his licensing requirement under State law Bob??? Hmmmmmm let's see, no CFP, OR, potential jail time, a fine and a new boyfreind call Butch.......... Tough choice huh. Or perhaps the intended consequence, making the CFP® Certification elitist and forcing the life agents who built the marks and made them famous and distinctive out after all these years. After all, around the time of CFP lite, over 70% of all Certificants held life agent or insurance licenses in one form or another, right Bob?

"should RIAs be held to the fiduciary standard and insurance agents to the suitability standard? Or are there circumstances when insurance agents can (or are motivated to) meet the fiduciary standard?"

Insurance analysts and counselors in CA and other States (Around 32) that have the laws on the books ARE fiduciaries. So are many insurance "brokers" in the Property/Casualty field in CA at least, where they are permitted to represent the client to the company rather than the other way around. There is no such "broker" license for life, health, disability or long term care in CA and for the most part, you cannot be a life agent unless you are appointed as an "agent" by an insurance carrier. Furthermore, if you do not intend to "sell" insurance in CA, you must surrender your life agent license so the law prohibits one from just getting a license and talking about insurance while charging a fee, you still need an analyst license for that. This may be different in other states, SO, not only are you dealing with 50 different statutes here, you're dealing with a whole bunch of different ways to do business. I know some States allow agents to charge fees, others allow them to take fees and be life agent licensed without being appointed by an insurance company. It's a bloody mess and I've been trying to influence the Royce/Bean Act for a while now, to clean up some of this mess. It's not going well and the fee-only crowd aren't helping because they understand the enforcement on high paper crimes of misdemeanor are negligible when budgetary constraints force DA's to prosecute rapists, murderers and gang bangers rather than fee-only criminals. So I say, let's get the fee-only crowd who proclaim to be holier than thou Fiduciaries "legal" first... Pressure the CFP Board and NAPFA to openly take a stand on this issue.

Once you've done this your only issue will be that the client will always pay twice for going to a fiduciary insurance planner UNLESS sufficient commission free, lower cost products can be produced by insurance carriers... but where's the incentive for the insurance carriers Bob??

NOW, if you want to lobby the CFP Board not to include insurance planning in their definitions of financial planning subject areas, which would allow me to call my practice fee-only, knock yourself out and good luck with that!

Finally, I can say that I was at the forefront of the CFP lite controversy... I felt betrayed, deceived and fought back because I was a CFP® Certificant... I guess "we" should clarify that you had no vested interest other than from a journalistic standpoint because you're not a CFP® Certificant.

[jay]

To the Observer, this argument has turned into your diatribe on insurance when in truth, most advisors I know do not touch insurance other then to refer to someone qualified. This keeps the fee the advisor charges for money mangement and advice, true.
On the note of being civil, you are certainly lacking. You are a condescending blow hard. You seem to feel your years of experience entitiles you to discharge advice to everyone. You are, in part, what is holding back this profession with your old-school thinking. Retire, and do us all a favor.

[Stephen Winks]

Bob,


Insurance is just another financial product. The problem has an antiquated delivery format where there is a fiduciary relationship between the adviser and the insurance company not the client. Thus the clients best interests is at odds with the insurance companies best interests. Dodd-Frank resolves this, with the insurance agent having a fiduciary relationship with the client and charginga fee for their services likewhat has occured in England. Thus, to answer the question there is one fiduciary standard based on 800 years of common law where the insurance industry adapts to a fiduciary standard rather than there being another lesser fiduciary standard for an exception such as insurance.



SCW

[Stephen Winks]

The observer,


You are correct, the insurance industry is a mess and must adapt to Dodd-Frank. I refer you to Joe Mancuza who is a consultant to the industry for over a decasde on fee only life which is consistent with the adviser's fiduciary standing. There are fiduciary insurance solutions.



SCW

[Lucullus]

Mr. Wicks claims that "Dodd-Frank resolves this, with the insurance agent having a fiduciary relationship with the client and charginga fee for their services likewhat has occured in England."

Nonsense. Dodd-Frank contains no such provisions.

Sect. 913 of that Act does contain the following language:

(1) IN GENERAL.—Notwithstanding any other provision of this Act or the Investment
Advisers Act of 1940, the Commission may promulgate rules to provide that, with respect to a broker or dealer, when providing personalized investment advice about securities to a retail customer (and such other customers as the Commission may by rule provide), the standard of conduct for such broker or dealer with respect to such customer shall be the same as the standard of conduct applicable to an investment adviser under section 211 of the Investment Advisers Act of 1940. The receipt of compensation based on commission or other standard compensation for the sale of securities shall not, in and of itself, be considered a violation of such standard applied to a broker or dealer. Nothing in this section shall require a broker or dealer or registered representative to have a continuing duty of care or loyalty to the customer after providing personalized investment advice about securities.

And this language:

(B) INVESTMENT ADVISERS ACT OF 1940.—Section 211 of the Investment Advisers Act of
25 1940, is further amended by adding at the end the following new subsections:

26 (g) Standard of Conduct.—

27 (1) IN GENERAL.—The Commission may promulgate rules to provide that the standard of
28 conduct for all brokers, dealers, and investment advisers, when providing personalized
29 investment advice about securities to retail customers (and such other customers as the
30 Commission may by rule provide), shall be to act in the best interest of the customer
31 without regard to the financial or other interest of the broker, dealer, or investment adviser
32 providing the advice. In accordance with such rules, any material conflicts of interest shall
33 be disclosed and may be consented to by the customer. Such rules shall provide that such
34 standard of conduct shall be no less stringent than the standard applicable to investment
35 advisers under section 206(1) and (2) of this Act when providing personalized investment
36 advice about securities, except the Commission shall not ascribe a meaning to the term
37 ‘customer’ that would include an investor in a private fund managed by an investment
38 adviser, where such private fund has entered into an advisory contract with such adviser.
39 The receipt of compensation based on commission or fees shall not, in and of itself, be
40 considered a violation of such standard applied to a broker, dealer, or investment adviser.

We see references to "brokers", "dealers", "registered representative" and "investment advisors", all in the context of the delivery of "personalized investment advice" and the sale of "securities". "Insurance" is not mentioned; nor is "insurance agents". Mr. Wicks may believe that Sect. 913 ought to apply to agents selling insurance products that are not securities or that the delivery of any advice relating to anything financial, even when no security is mentioned, is "personalized financial advice", but those would be merely his opinions.

As to his statement that "Dodd-Frank resolves this, with the insurance agent having a fiduciary relationship with the client and charginga fee for their services likewhat has occured in England", that, too, is merely Mr. Wick's opinion. And it's DEAD WRONG.


- John Olsen

[the observer]

Jay,

Actually, I thought that discussing fiduciaries breaking the law would be ABSOLUTELY relevant when discussing one fiduciary duty, or two.

Now, if you only know financial planners who send out the insurance business to competent life insurance agents, I’d be interested to know how they can call themselves “financial planners”… According to the CFP Board, a CFP practitioner (doesn’t exist any more but they continue to use the title anyway) is someone who “
engages in financial planning using the financial planning process
”. The financial planning process includes risk management and all sorts of insurance planning. In my books, this means the business gets done in-house by the Practitioner, or are the people you know all practicing “modular planning”, which isn’t financial planning at all, but rather, just working under the various licenses and registrations we all have to hold to practice a certain discipline.


Tell me this Jay, since you feel too much is being said about “insurance” even though most won’t challenge my or Errold Moody’s allegations in an open forum, but rather, either brush over them or make stupid comments like “Observer’s “diatribing about insurance, which is irrelevant to the conversation”

Why is “Financial Planning” relevant as a “profession” if everyone’s just engaging in modular planning?? Isn’t this elitist “profession” just a mechanism to gather assets for RIA’s?

Seems like most financial planners you know are leaving the insurance to the professionals and if they are leaving the estate planning to the attorneys and the tax planning to the CPA’s and enrolled agents and just gathering assets for themselves, I’d say they have no business calling themselves financial planners, but hey…

How much thought have YOU really given to the entire topic?

Set aside any talk of Registered Investment Adviser, securities and fiduciary duty, RIA’s already are fiduciaries, I’m a fiduciary. If you don’t want to discuss “insurance” as part of this, provide some contribution in answer to my other challenges above.

Address my double dipping and overcharging concerns in “estate Planning”, tax planning for a start. Since we already know that holding out as an expert subjects a personal to the prudent expert standard under civil law in addition to “unauthorized practice of” in certain instances, whyis there an additional need for a “fiduciary duty” if no one is really practicing financial planning, Jay??

Make your case as to why the CFP Board and NAPFA should be pushing for additional and overly burdensome SEC regulation and oversight of a “profession” of financial planning when the establishment of this profession will NOT mean that financial planners can suddenly and magically perform all the duties other professions can under the watchful eye of one regulatory body.

Explain why a “profession” is needed in the first place. Don’t touch insurance if you’re too intimidated by the topic.

ALTHOUGH… let’s face it, since insurance agents and registered representatives are the only ones not covered by a single uniform fiduciary duty, RIA’s are fiduciaries and you can’t implement estate and tax planning without a licensed professional in the room, what else is there to talk about but insurance agents and registered reps, Jay??

What do you think all this talk is about, Jay?


You think someone’s going to wave their magic wand and all financial planners will now be able to draft wills, trusts and estate plans and file tax returns and represent clients before the IRS, all under the watchful eye of the SEC??

Instead of ragging on me, and I can take it, I’m a big boy… Why don’t you tell me what IS relevant in your opinion, because your single post here so far was completely devoid of any relevant content.

You may not like “insurance talk”, so go ahead and fault me on anything else… but do so with reasoned arguments not diatribe remarks. Bulletin Boards are not polished magazines where the content is scrubbed of any relevance until the dry, boring cardboard tasting finished product is fit for general consumption. Sorry you don’t like my tone… You don’t have to like my tone, get in line. This is raw and emotional, hopefully and people should have a forum to vent their frustrations. Without it, the bulletin boards lose their relevance.

If YOU want to make a point, then you need to come up with an original thought or an effective counter argument, ‘cos raggin on me without either of these still makes you the loser.

ANYBODY... give me feedback on my comments here and above about where we should go with this.

John, will you show Bob how things are done the right way if he makes the effort?? Bob, I'll be happy to show you ow scumbags operate and give you some real life examples. I'd just love to get you out of the fee-only camp for a little while to sniff at the real problems facing us all.

[jay]

The Observer, I should have been more delicate in my response even if it was my honest opinion. That said, my concern is that what I have spent time building deosn't end up to be a waste of my time. I would like to spend the rest of my professional career within this "profession", but I see it in danger of possibly being taken down the road of just another product pusher for good. The relatively new vigor in the debate on oversight, titles and compensation gives me hope that we are moving in the right direction.


Then I read these blogs and it comes down to payouts and individual state laws and I see just a bunch of people trying to protect their little kingdoms. Nothing will change unless some bigger-thinking people with some guts helps move this discussion in what I feel is the right direction.



Stop hiding behind rules and regulations that fit your argument and actually offer some intelligent discussion as to where this heap of differentiated business models can effectively be melded together for whom we are all supposed to think about first: the client. No one can honestly tell me that as long as commissioned reps sell products from a firm with multiple page payout schemes, that they are indeed looking out for the client first. As to insurance, its absolutely imperative to provide risk protection and in some cases for retirees, to provide for a portion of their income stream. For pure investment purposes, insurance is not the best option, period.



When insurance is an issue, I refer to a professaional who is an expert in that field in which I am not. One can not be something to everyone, having a core group of professionals to refer clients to is one of the most repsonsible acts as an advisor acting as a client's financial quarterback.

[the observer]

Hi Jay,


My basic problem is... I'm not sure we CAN meld the various parts together effectively UNLESS we change the way the business of insurance and the business of securities within broker dealers is offered.



Second point, we don't stand a chance against the securities and securities lobby in terms of money for Congress. Blue Cross alone contribute nearly 4 times more in one year than the CFP Board wants to spend on promoting the brand next year. In Congress, money talks... money talks, forget the Bull***t walks part of that old saying.



Third point. The financial planning coalition is not seeking a separate and distinct profession that will allow us all to practice comprehensive financial planning based on a federal SEC license because constitutionally, that's just not doable and securities and insurance special interests would have anything like it struck down. What the coalition's efforts, if they are successful, willl do is create an additional layer of regulation overseen by the SEC, which may delegate responsibility to FINRA, not a separate layer. Do financial planners who are investment advisers want to be overseen by FINRA again just to use the term financial planner??



In terms of what can be done, look for the nuggets in my postings and read some of the white papers I and others have published in the past in this and other magazines. The business of insurance can be changed effectively, IF fee-only planners and others would get behind and support all the comments and articles I've published here in the past in favor of completely revamping the Melissa Bean Ed Royce federal bill that seems to be going nowhere. The National Insurance Consumer protection Act. It looks like it's dead in the water right now, particularly since Republicans want less, not more regulations. I met with Ed Royce for hours and pounded him on the need for making adjustments to this Act. I'm not sure if he was really that interessted but I tried.



If anyone missed my comments on how this act could be changed to get us towards some honesty in the business of insurance, I'd be happy to reproduce it here.



Of course, it hurts a little to do this since all this could content is based on hundreds of hours of reading the act, thinking about things, writing about them and then taking meetings none of which brings a dime into my practice, but there you go. Just like the other hundreds of articles I've published in the past and never gotten a dime for... I get passionate here in the forums, it's what they are here for... remember when this was a forum for outrage and commiseration??



Maybe I can get Bob to pay me a little! :)

[Stephen Winks]

John Olsen,


My previous response apparently timed out and did not post.



I agree with your characterization of what Dodd-Frank says, but the general fiduciary duties of advisers to which brokers must subscribe are determined by the DOL and other agencies as well. Thus effective July 16, 2011 under 408(b)2 adviser disclosure documents are required where you to set forth the services you provide and their cost. Under accountability for recommendations you would check no, under transparency in cost you would check no, under transparency in compensation you would check no. Thus, given Dodd-Frank holds you to the same fiduciary standard as advisers--in effect, in a competitive market place, other agents will be answering yes to those questions which when aggressively promoted by competitors will require you to comply whether specifically stated under Dodd-Frank or not, they are a core fiduciary duty for advisers.



SCW

[the observer]

" but the general fiduciary duties of advisers to which brokers must subscribe are determined by the DOL and other agencies as well."


In the area of retirment plans subject to ERISA I can see that... but nobody has shown me where the DOL or any other agency has any say over State Registered Investment Advisers or insurance agents, sorry.

[Lucullus]

Evidently, Mr. Wicks believes that anyone who sells insurance is an ERISA advisor.

Reg. 408(b)(2) is an ERISA regulation. It applies to "service providers" to an ERISA plan. It has absolutely NO applicability to the insurance services offered by an individual agent to an individual consumer, where both the insurance coverage and the advice are unrelated to any ERISA plan.

[the observer]

Perhaps it would be a really good idea for everyone to take a look at the 10th Amendment to the U.S. Constitution.