Voices

One Standard or Two?

I think most of you know that the planning community has a lot of knowledge and wisdom--WAY more than any individual writer or commentator.  But how do we tap the deep wisdom of the crowd to help us resolve important, complicated issues?

The editors of Financial Planning magazine has asked me to start conversations on important topics--to frame a question and ask you, if you have thoughts or opinions, to share them on the discussion forum.  (You'll find a link at the end of this message.) 

So here's a question that I, frankly, don't know the answer to: Should everyone in the planning profession be held to one regulatory standard? 

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.  But in the real world, there are two classes of independent advisors--those who give relatively impartial advice to their clients, and those whose primary objective is to rack up sales and GDC.

Chances are you 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.

Most independent broker-dealers have people like this scattered around their field force.  Their sales activities can make the difference between break-even and profits.  The BD can't afford to let these people go, and at the same time, it can't really afford to say, out loud, to regulators or the SEC, that the Financial Services Institute is trying to protect these sales activities when it lobbies against a broad fiduciary standard.

The question I'm wondering about is: as an acknowledgement of reality, 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?

If so, how would this work?  Where would you draw the line?

To enter this discussion, click the "discuss this" button 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 an email

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Compliance Law and regulation
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