After a tumultuous election cycle, the United States is more divided than ever. This division is happening at a time where our country could arguably be at one of its most significant crossroads in its history, and the financial advice industry is along for the ride.
In 1940, the "F" word entered the world of financial advice. Decades later, the industry is at odds with a new rule attempting to clarify how the word is defined, how it will be enforced and to whom it will apply.
It's a simple concept: Put the interests of your client ahead of your own. It's a concept that's divided our industry in ways no one could've predicted.
WHAT'S RIGHT WITH THE RULE?
Establishing a unified code of conduct that centers around financial professionals having an ethical and legal obligation to act in their clients' best interest is a no-brainer. Find me a financial professional that feels otherwise, and I'll show you a crook. The efforts being made by the rule to reduce or eliminate conflicts of interest are spot-on. The fact that it includes professionals with varying licenses is a step in the right direction, too.
WHAT'S WRONG WITH THE RULE?
The case against the rule has been well documented. The rule:
• May lead to less product availability;
• Will increase compliance costs;
• Opens the door for a bevy of lawsuits;
• Adds a laundry list of challenges for firms and advisers who operate under a commission-based compensation model;
• Affects only retirement assets;
• Will be a disservice to smaller clients.
Regardless of whether you agree with any of those statements, that's the case being made by opponents of the rule.
TWO DIFFERING CAMPS
Over the past decade, the debate between fee-only and commission-based professionals has heated up. Fee-only advisers routinely chastise their counterparts, citing commissions as a major conflict of interest and the suitability standard as an inferior consumer-protection standard.
Insurance professionals and registered representatives may point to product guarantees or the ability to serve a more diverse client base while maintaining a profitable business model. The rule would apply to professionals no matter what licenses they maintain. However, it's clear that those who receive commissions will be forced to jump through more hoops to comply.
I don't make it a habit to post comments at the end of articles on the web, but I confess that I read them. I respond, but only in my head. I can't bring myself to engage in the back-and-forth attacks. The sad reality is that the rule has only made it worse. What used to be a debate that was kept within the industry has turned into a public airing of our laundry. It's simply creating more distrust and skepticism about our industry. We'd be much better served trying to advance the various segments of the industry in a unified way.
BOTH SIDES ARE WRONG
It'd be impossible for any financial professional to completely eliminate conflicts of interest. Conflict can and will exist.
If you're so caught up defending your side of the debate that you can't see the forest for the trees, it might be time to take a step back. Yes, the fiduciary standard is (in theory) a higher standard than the suitability standard, but I can tell you I've seen poor recommendations come from professionals who are allegedly adhering to the fiduciary standard. On the flipside of that, we've all seen incentives that have blatantly steered money one place instead of another.
Neither side of this argument is immune to blemishes. It's time for our industry to acknowledge the positives that come from the other's business model. This starts with recognizing the important role that the various segments of the industry play in the lives of consumers. Our clients are counting on us now more than ever.
Mark Mersman is the chief marketing officer at USA Financial, as well as one of the co-hosts of the nationally syndicated USA Financial Radio Show.