The sad reality is that financial planning for some means spending 6 hours finding the best Black Friday deal on an 85” TV vs. the 5 minutes spent understanding where they obtain financial advice. (That’s not true. I spent 10 minutes one rainy Sunday comparing my fund returns to the S&P 500 just like that USA Today article suggested. Now that’s savvy planning!)
Kidding aside many folks are woefully uneducated about the source, regulation and motivation of their financial advice provider. While many believe their advisor and his/her employer act in their best interest (fiduciary) the truth is most act in their own best interest at the expense of their clients – choosing to adhere to a different, easier standard (suitability) required by their regulators.
What’s in a name? It’s easy to spot the difference. Only those with the CFP® designation may refer to themselves as financial planners. These are the fiduciary standard flag-bearers. The suitability folks may not refer to themselves as financial planners so they obfuscate by calling themselves advisors or consultants.
No matter the title Uncle Sam wants to ensure the provision of advice is done in the best interest of the citizenry. In an attempt to do so the Department of Labor passed a rule to go into effect early next year requiring providers of retirement advice to act in a fiduciary capacity. You can read more about it here.
The change has sent the Wall St machine into panic. Granted the extent of the advice offered by these firms is nothing more than which product should they sell to their customers they nonetheless must incorporate the DoL’s edict into their business practices.
Some firms have eliminated commissions (on retirement accounts only – they’ll still soak customers on non-retirement accounts) or will rely on the Best Interest Contract Exemption. Some of their sales staff (oh, sorry, advisors and consultants) fear a pay cut and are contemplating leaving the business.
Others are spinning the change in their favor by revving up the PR. In a new ad campaign supporting the rule (albeit begrudgingly) Merrill Lynch states that they are “first among peers” to take the position that “this is a positive step forward for the industry” and is committed to the “best interest of the client.”
Really?
Wall St is no different than any moneymaking endeavor. They know the best way to distract customers from what they’re truly getting is to sell an experience. Ads are full of smiling, active gray-haired folks riding their bikes and hardworking parents beaming with pride at their child’s college graduation. They’re the Starbucks of financial services – come hang at our cool café and enjoy the vibe so you don’t realize you spent $8 on terrible coffee.
If Wall St is interested in acting in the best interest of their clients they wouldn’t need DoL regulation to force them to do so. Merrill’s attempt to embrace a rule being shoved down its throat is spin at its finest.
There’s little doubt we’ll hear nonsense like this over the coming months as more firms join the PR arms race. Our job as consumers is to remember these firms didn’t care about our best interests for years. Tigers don’t change their stripes.
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