Steve Lewit, President and CEO of Wealth Financial Group, has an opinion piece published in LifeHealthPro, dated February 11, 2013. The title “Like it or not, the fiduciary standard is coming” states his position clearly. He states, somewhat provocatively: “To believe that retail standards for a broker-dealer should be different than for a financial advisor, or that an insurance professional should somehow have a lower level of responsibility to the client than another financial professional, stems from arguments that are either self-serving or misinformed.” On February 12, 2013, Todd Greider followed with an article setting out his opinion that imposing a fiduciary standard won’t change anything. That piece, also published in LifeHealthPro, states: “you can’t impose morality and ethical behavior through legislation. Those that wish to take advantage of others for personal gain by nature do not follow the rules.”
I agree with portions of both of these positions. I agree that morality should dictate that financial professionals exercise a standard of care when dealing with other people’s money that puts the clients’ financial position above the professionals. I also recognize that laws cannot change the fact that some people will not do so. However, the fact that some people will violate a law seems, to me, more of a reason to have the law rather than a reason to not have the law.
I think laws and regulations, along with compliance as the flip side of those rules, are generally about two things:
- Creating a common definition of what it means to do the right thing. (Even those who have the moral foundation to want to do what is right, might have different concepts of what that means.)
- Creating a means to take action against those who fall into the category Mr. Greider identifies of wanting “to take advantage of others.” (Enforcement.)
Without a set of standards—like the fiduciary standard—there is no way to level set expectations with respect to behavior. Reasonable and moral people can differ about what is “right” and so to have rules is to pick from those and set a standard of behavior.
A very simplified analogy is that it may be reasonable to set a teenager’s curfew at 11:00 PM or midnight. Good parents might disagree on that. But if that parent has two children of the same age and one has a curfew of 11:00 PM and one has a curfew of midnight, both come under scrutiny and fairness is questioned. Furthermore, enforcement becomes difficult for either, and it becomes the source of anger and resentment. In order to enforce a reasonable standard, it must be applied evenly. So even though either curfew might be fine standing alone, successful enforcement demands a choice – demands that a uniform standard be set.
I have no doubt that if the fiduciary standard were to become universal, there would be those who would violate it. But there would not be a discussion about whether if he or she had a different type of license the conduct would have been unlawful. The discussion would focus where it belongs: On the conduct of the financial professional.
One of my strongest beliefs is that the most important thing about regulation is that it be predictable and consistent. What is unfair to those who want to do the right thing and want to follow the rules is to change them and make them difficult to understand and interpret. There is a simplicity to the fiduciary standard that makes it seem fair to expect, fair to adopt and fair to enforce. It is true that we can’t legislate morality, but that doesn’t mean legislation that sets a standard of conduct doesn’t support those who behave in a moral way.