Financial Truth Saying
( An introductory note – I reread this the next day after I wrote it and I’m sure to many it comes as shrill and angry. Some years ago, I asked a fellow academic to add a link to my web site, he said he wouldn’t because he had read articles from my web site and they were were shrill. He suggested I moderate my views and seek comments to balance my writing. I never asked anyone to link again.
I wanted to ask him what his blogging had accomplished, who his moderate, restrained and academic language had influenced to do what was right and avoid what was wrong but I was sure he would find that shrill.
If you read the article below, you will get some of my anger, perhaps more than you consider appropriate. I am writing about the legal responsibility of personal financial advisers to tell the whole truth to their clients, – in most cases, retirees who have spent their lives accumulating resources so their final years might have some degree of comfort. Instead of a fiduciary duty which, for instance, attorneys, have to their clients, these “advisers” have a lower level of responsibility which they use to influence their clients to take actions in favor of the adviser and against their clients best interest.
In my simple naive world, devoid of the “buyer beware” of Friedman style economics, I find adhering to a lower standard of duty to misuse your customers dishonorable, a failure in the duty of a lady or a gentleman, a failure of the legal duty of fair dealing, a failure to adhere to the standards of religion be that faith: Christianity, Islam, etc., and a disregard of the tenets of virtually every Western philosophy up to Ayn Rand and our contemporary worship of greed.
I guess that’s shrill.)
Before I begin talking about the personal financial advising industry, I want you to know that if you write for a while, you begin to develop an admiration for the clever writer. When you are just a reader, it is easy to overlook a clever title or an eloquent lead in, but when you write – it’s different. And here is a lead in that flies right up to the angels:
Congress wants to make your retirement worse.
That’s not what House Republicans are saying, of course. Our elected representatives are trying to save our retirement, they claim. Americans are under threat from “a government scheme,” as Rep. Phil Roe of Tennessee put it—one that will likely “intimidate the new investors” and “discourage them from saving,” according to Rep. Virginia Foxx of North Carolina. The threat is so severe, “we are at war,” roared Missouri Rep. Ann Wagner last month in an appearance before an insurance brokers convention.
All this hyped-up, martial verbiage involves an ongoing attempt by the Department of Labor and the Obama administration to expand something known as the fiduciary standard, the legal requirement that financial advisers and brokers put your best interests ahead of their own, to cover retirement accounts.
(The selection above is from Helaine Olen writing for the online magazine Slate.)
The feds want to change the standards for advising customers in the personal financial advising industry. Olen explains it in more detail but the story is pretty straightforward. Most in the personal finance industry do not have to adhere to the fiduciary standard, that is, to act as your agent by fully informing you of your choices. They live by the suitability standard, a less stringent standard, which means they can advise you to do things that bring them extra profit while concealing from you information that might lead you to make a different decision.
The critical issue here is rollovers. Your adviser desperately wants you to take you money and move it into something else (like an IRA) where he can collect fees and be rewarded by his friends in the financial industry. One of the things, the adviser isn’t telling you is how much he makes from advising you to make these kinds of decisions.
So, here is the fight in Congress in a nutshell. The personal financial advising industry says if they have to tell the truth this could cost many millions of dollars and some could go out of business. They want Congress to protect them from the crazies in the Labor Department and the Obama Administration who have this bizarre fetish for the “truth.” After all, “What is truth said jesting Pilate and did not stay for an answer.” On the other side of the issue are the great American people who are not aware that this particular industry’s profit model involves giving the kind of advice one would give to one’s enemies to them.
Financial Truth Saying
So, some in Congress are lining up with the financial industry to preserve the right of non-disclosure to the clients. Think of it like cigarettes. It must have pretty unfair in the minds of tobacco companies to have to tell people their product was dangerous. They must have been furious. And it is just the same in the personal finance. Can you feel the rage? -“Why should I have to tell some old couple that I’m advising them to make me money and them more financially insecure. I mean, hell, they’re adults right. We don’t need the government sticking its nose into our business and acting like truth telling is important. What are these people? Twelve? This isn’t grade school. We’re adults now. If I can convince them to give me money, I should get the money. The government should mind its own business.”
And there are those in Congress who feel the truth in those words and wonder why it is when things are going so well for the industry that the government has to come in and mess it up.
I teach business ethics and I am going to come down on the side of truth telling. It is my belief that if you can’t sell something without some serious non-disclosure, you should not be selling it. Of course, the industry has well financed ties to some members of Congress while the great mass of the American people have little or no contact with members of Congress. Thus I am not optimistic.
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