by Ronald E. Hagan
CEO - Roland|Criss
The financial consulting industry is embroiled in an internal fight. At issue is the national effort to make all investment advisors legally required to put their clients' interests first. In other words, to make all financial consultants accountable as fiduciaries.
Insurance companies and securities brokerage firms oppose strongly the fiduciary requirement. They argue that a fiduciary standard covering all insurance agents, mutual fund brokers, bond brokers, pension consultants, and the like would only increase their costs. They imply that the costs would be passed on to retirement plans, foundations, and retail clients.
Under today's rules, investment consultants may receive both direct and indirect financial benefits from investment product sources like mutual fund companies and insurance annuity issuers. These benefits influence consultants' recommendations.
If they were held to fiduciary accountability, financial consultants would not be able to factor their income into their recommendations. The tendency to color advice based on which product sources pay advisors the most income is, however, pervasive. Even consultants that are registered under the Investment Advisers Act of 1940, which imputes to them a fiduciary duty to their clients, are able to skirt that law and receive extra money rewards.
The widespread opposition among financial consultants to a universal fiduciary standard for all investment vendors tears the cover off the trusted advisor concept. This is bad news for those caught in the middle such as retirement plan sponsors, endowments, foundations, and private trusts. The fiduciary laws to which they are accountable provide no relief from the duty to put the interests of their retirement plans' participants, charitable donors, and beneficiaries first. Given the extent to which duty bound fiduciaries rely on investment "professionals" for the tough decisions they face, it seems only right that advisors who enrich themselves at the expense of trusting clients should get in the middle, too!
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