Brokerages’ ‘access to advice’ argument preposterous: IN’s Cooper

Given the vague, distorted and misleading ways many of us use language these days, George Orwell is probably spinning wildly in his grave.
Some of the language distortions are relatively benign, such as my pet peeve of being called a “guest” by cashiers at the nearby CVS pharmacy. For crying out loud, when I line up to pay for deodorant or shampoo, I’m a customer. If I truly were a guest, I should be offered a chair or a cup of coffee while my “host” is making change.
I heard a more serious Orwellian language violation at the annual meeting of the Securities Industry and Financial Markets Association this week. It has to do with use of the word “access.”
First, let me rant about that word, which the dictionary defines as “the freedom or ability to make use of.” These days, when we talk about the inability of poor people to afford to see a doctor or rent an apartment, we hardly ever use those simple words to describe the situation. Instead, we talk about their being “denied access” to the “health care system” or to “affordable housing.”
By using the word “access” in this way, we shift the problem from a paucity of cash on the part of the buyer to some evil machination on the part of the seller.
This is utter gibberish and it perverts our ability to think clearly. In the case of products and services, the simple economic truth is that these goods are priced to reflect costs and a profit. If someone doesn’t have the money to make a purchase, they can either forgo it or round up the necessary money from others (friends, relatives, a charity or government subsidy).
Really, if I can’t afford an $85,000 Phaeton, does that mean I’m being “denied access” to Fahrvergnügen? Such phrasing puts the onus on Volkswagen for charging what it charges rather than on me for being too poor to buy it. That’s a handy verbal trick.
Retail-firm executives speaking on a panel at the SIFMA conference employed similar verbal slight of hand when they used the term “access to advice” in relation to the fiduciary standard. They argue that imposing a universal fiduciary standard could wind up denying less affluent investors access to financial advice because brokerage firms could not afford to provide it under a business model that doesn’t permit proprietary trading, for example. By using the term “access to advice,” they subtly shift the argument from their being reluctant to change the way they do business to one that instills the fear that if the current system is swept away, average investors won’t be able to afford advice.
Simply put, their argument is preposterous.
First, it presumes that if brokers were held to the same standard as RIAs, costs for the client automatically would go up and the customers would flee. If that were case, which I doubt, don’t you think that in our free-market system, somebody or several somebodies would seize the opportunity and come up with a way to meet the huge demand and provide advice more cheaply? And wouldn’t more potential investors flock to get advice if they knew it were not conflicted?
Second, if the brokerage firms were so concerned about being able to offer lower-cost, non-asset-based advice to less affluent customers, they could always charge for it by the hour through staff planners or advisers and then offer execution through another arm of the firm.
Third, since brokerage firms have long espoused the argument that you get what you pay for (remember how they railed against discount brokers?), maybe the advice that customers now receive bundled “free” with their commissions and markups isn’t worth as much as advice investors pay for directly.
The truth is, I doubt securities firm executives would buy the “access” argument if another industry pitched it to protect their interests. The securities firms are using the timely trope because it could very well work — regulators may be cowed into believing it or simply go along with the superficially plausible idea that if they impose a higher standard on advisers, ordinary investors may wind up paying more.
Let’s sweep away the verbal fog. Securities firms aren’t intent on keeping commissions and proprietary trading because those practices are best for investors. They’re best for securities firms, their shareholders and their executives — and sometimes good for customers.
But rather than be swayed by semantic games played by interest groups, wouldn’t it be great if regulators simply required (or themselves provided) plain-English explanations of the investment process?

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