Ask the Ethicist

The case for more prominently disclosing compensation and conflicts of interest

Wouldn't it be easier if financial advisers had to wear the logos of all the companies whose products and services they distribute?

Mar 16, 2017 @ 1:44 pm

By Dan Candura

I didn't receive any questions this month to use as a source for this column. Maybe you were all too busy trying to figure out whether the Department of Labor's fiduciary rule is alive or dead? Or you could be trying to figure out how the American Health Care Act will affect you and your clients?

At any rate, without a suitable question (Hint! Hint!) I was left to my own devices and decided to spend some time clearing my inbox to look for inspiration. That's when I found a picture my son sent me of two European ice hockey players. My son, who played hockey as a kid, wanted to show me the uniforms these junior level players were wearing to compete for their home countries.

(More: How to make a U-turn after retirement)

The uniforms were emblazoned with so many logos it was hard to find the players' numbers. Bigger contributions bought larger and more prominent displays. Running out of space can be accommodated with multiple jerseys — home, away, first period, second period and so on. If you follow NASCAR, you're used to seeing cars covered with sponsor logos as well as the drivers' flight suits, and the trend is spreading to other sports. The Boston Celtics recently announced that their iconic uniforms will feature a sponsor logo next season.

At this point you may be thinking, "So what, Dan? What does this have to do with ethics?"

It started me thinking about disclosure, compensation and conflicts of interest in financial services. It can be difficult for consumers to understand who is actually paying their financial adviser. It can be hard for advisers to explain without putting our clients to sleep. Our compensation structures are opaque and convoluted. Millions of pages of ADVs are published with lengthy, generalized explanations designed to meet regulatory requirements but add little to the customer's understanding — notwithstanding the fact that few customers bother to read them.

(More: How should an adviser respond when a client misunderstands their advice?)

Wouldn't it be easier if financial advisers had to wear the logos of all the companies whose products and services they distribute? Sure, the broker-dealer would get prime positioning with the largest and most visible display. Mutual fund families might get the right sleeve and insurance companies the left. Cuff links may be small but would be prized for the frequency of sighting as an adviser hands over a pen for customer signatures. Neckties and scarves in vibrant sponsor colors and designs let the customer know right away which vendors the adviser favors and which, by their absence, she doesn't.

It would only take a minute for customers to see immediately the scope and scale of sponsor support. Think of it as an infographic the adviser wears so all of those visual learners can get the picture right away about compensation and conflicts. Prospective customers have short attention spans. They don't want to get into details, and they hardly ever read past the first paragraph. They have no idea what a fiduciary standard is even when maybe acting in their best interest might be good for them. Wouldn't it be just be so much easier if all they needed to do was check out the logo on their adviser's socks?

(More: Judging the presidential candidates by the CFP Board's standards of conduct)

Dan Candura is founder of the education and consulting firm Candura Group. Write to him to submit a question. All submissions will be treated confidentially.

0
Comments

What do you think?

View comments

Most watched

INTV

Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.

INTV

Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

Latest news & opinion

New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Industry push results in chance to air grievances on July 17 and another month to present objections.

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime

4 strategies for Roth conversions

There's never been a better time to do a Roth conversion, and here are several ways to go about it.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print