The online discussion about whether, in our fiduciary debate, we should have one standard or two, has stirred up a hornet's nest. They tell me that the conversation is unusually civil for a discussion forum, but I don't think I'm having to read too far between the lines to see some heat in the discussion.
The question has been refined a bit, largely with the input of insurance professionals and agents. They point out that in practical terms, the way the market exists today, it is impossible for an insurance agent to act (in a strict sense, at least) as a fiduciary.
Why? Because the way things are now, an agent has an agency duty to the insurance company that cannot be breached under current circumstances. Therefore, if you recommend insurance for a commission, you either serve one master (the insurance company) or two (the client and the insurance company), but putting the interests of the client above all else is not procedurally possible.
One person, who is an RIA and also has a life insurance practice, talked about sometimes acting as a fiduciary, sometimes not, depending on what products or services he happens to be talking with the client about.
Another visitor to the discussion, who does compliance work and is highly visible in the profession, pointed out that there ARE insurance professionals who are offering advice purely for a fee without an agency contract. He points to England as a market where the authorities grew impatient with the ambiguity and effectively ended it by regulatory fiat--no compensation is allowed that creates a conflict of interest with the client.
And although the recent Dodd-Frank regulatory measure doesn't spell out exactly how (or whether) something like this would happen in the U.S., the SEC has been invited to decide whether it will impose a fiduciary standard on everybody who gives advice.
If/when that standard comes down, it might spell the end of the agency/sales commission model in the insurance world.
So this is an updated version of the original question: if a fiduciary standard is imposed, should it allow those who have agency contracts with the insurance and other product manufacturers to live under a different set of standards than those whose focus must, by law, be on the financial health of the consumer? If the answer is "yes, there would be the two categories," then the two will be regulated differently, the two will hold themselves out differently, and the current system could go on as before.
If the answer is "no, there should be only one kind of advisor, whose obligation must be to the customer at all times," then it could mean the end (gradual or sudden) of the whole agency system, and and maybe also the brokerage system--although wirehouse brokers have been notably absent from the discussion so far.
I'll bring up one more issue: an advisor sent me a private message and noted that the fiduciary standard is meaningless without an equally-strong process for requiring advisors to be competent. To genuinely protect consumers, we need both components paired tightly, and right now we are only focused on one of them. In the medical world, we have the Hippocratic Oath AND board certification; the two, together, are designed to ensure that doctors will put our health above other considerations and that they have at least some idea what they're doing. In the financial services world, the debate is effectively focused on the Oath part of consumer protection without any minimum educational or proficiency requirement.
And that, in turn, could lead some constituents in the profession (highly-experienced brokers, technically-competent life insurance agents) to think we are following a path that leads nowhere; allowing incompetents and fools who agree to fiduciary standards to trump people with experience and wisdom who have agency relationships.
It's an interesting discussion so far. I invite you to join in with your own views when you have a free moment.
To enter this discussion, and offer your views, click the "discuss this" link below. I hope at least some of you will think that I'm completely off-base and will be courageous enough to say so; those are the comments I tend to learn the most from.
If you have suggestions about other topics that the profession ought to be exploring, or great ideas for a group discussion, please send me a message at: firstname.lastname@example.org.
Bob Veres is one of the leading journalists in the financial services world. In addition to his monthly Financial Planning magazine column, he publishes the Inside Information service for financial planners. For 20 years, Inside Information has been a primary resource helping advisors make progress in how they manage their practices, how they market themselves, and to help them improve their value and client services by tapping into the best ideas and practices of other successful advisors. For more information, go to: http://www.bobveres.com.
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