If our elected representatives suddenly got together to stop Wall Street's money-siphoning machine, it would cut off the flow of lobbying money into their re-election coffers and there would be nothing to replace it. Honest financial planners don't rake in enough that they can collectively or individually buy votes in Congress out of petty cash. At the same time, consumers don't know how to ask for protection from the brokerage money machine.
Our regulators are bought and paid for by a mechanism that's even less subtle. Enforcement officials at FINRA and the SEC are well aware that, if they play their cards right, they'll be able to step off the government's payroll someday into a cushy job with a brokerage firm that can pay enormous bonuses. Alternatively, they could move to a law firm that rakes in enormous retainers representing the brokerage community. Too few choose to blow up that cozy future by actually prosecuting predatory behavior.
If the SEC were put in charge of catching and prosecuting robbers and thieves, they would routinely make them pay fines amounting to about half of what they stole, require them to sign documents neither confirming nor denying guilt and extract from them a stern promise not to do it again. If FINRA were given the same task, whenever it caught a robber or thief it would require them to propose better regulations that they might be less inclined to ignore.
A GLOBAL STANDARD
The financial services world cannot possibly be alone in dealing with this ugly dynamic. I suspect, based purely on the experience of our fiduciary debate, that there are countless similar business ecosystems in Washington in which a company or industry effectively buys a license to steal, pollute, exploit or otherwise rake in ill-gotten gains in return for providing a percentage of the loot to the re-election campaigns of our political candidates.
I would bet all the money in my pocket that those industries have the same policy of offering lucrative future jobs to the regulators supposed to be keeping them in check. Everybody in that nasty food chain is acting with perfect rationality to create a system that I'd describe as obscene and destructive.
What we need is something more than a fiduciary standard for those who hold themselves out as providers of investment advice. We need a global fiduciary standard that requires our elected officials, regulators and corporations to look out for the best interests of the public at large. That may be the only way to effectively protect our consumer population and future generations who otherwise have no lobbying organizations looking out for their interests in Washington.
How would this work? When an agency like the SEC produces an analysis of something like (to take a not-totally-random example) how to implement Dodd-Frank, it would be forbidden from spending at least a third of the document worrying about the consequences to the brokerage firm business model. It would focus purely on what's best for the customer according to its fiduciary mandate.
When Congress gathers to figure out how to create consumer protections or legal remedies, it would be required to avoid the blatant conflict of taking money from lobbyists. The practice of moving to lobbying or cushy corporate positions from government work would be banned. Companies, meanwhile, would be required to look out for their customers - which might eliminate the entire tobacco and soft drink industries.
I know there's a chance that, if you've read this far, you started laughing out loud somewhere in the last paragraph. That is exactly the point. We are so far from living in a fiduciary world that, when you start to talk about it, the description sounds like a fairy tale. Yet we somehow believe that we can impose this standard on our own corner of the economic world.