New regulations took effect this week that require investment advisors to serve their customers’ interests before their own. This is known as a “fiduciary duty” and my SHOCK was in learning that this requirement is only being imposed now, in April, 2016, decades after a majority of employers moved away from pension plans in favor of individual retirement accounts such as 401k’s.
My DISMAY was in hearing investment advisors whine that this regulation is going to hurt their profitability. That is, the industry position is that it’s OK if advisors steer clients towards investments that pay heftier commissions over equally safe investment vehicles that pay lower commissions. It’s estimated that some $17 BILLION dollars is being siphoned off of retirement accounts as a result of higher management fees that are being charged so that advisors can make more money.
Worse, advisors are not required to disclose to their customers what they make, putting customers at a distinct disadvantage when it comes time to select among products or advisors. Without any transparency, you have to place your trust in the advisor – a trust we can see has been sadly abused.
In my world – the mortgage broker world – we’ve been required to disclose how much we make for years. Better yet, we are bound by an Anti-Steering rule that obligates us to present the loan options that serve the client’s interests best, not ours. As a practical matter, I’ve done that for my entire career; as an industry matter, I welcome that all brokers are required to meet this fiduciary responsibility.
I’m still disturbed that banks aren’t required to disclose what they make to their mortgage customers. That’s the result of their lobbying in Congress and reflects their continued unhappiness with the reality that brokers serve the mortgage market more efficiently, provide more transparency into the process, and offer lower fees and rates.
At the end of the day, I think transparency and behaving with a client’s best interests at heart allows us to both do well and do good. Isn’t that what it’s all about?