What’s Behind the Anti-Fiduciary Mindset?
In case you missed it, on September 7, APViewpoint hosted one of the best debates ever regarding the fiduciary standard and the DOL rule. It was notable because:
- Unlike most of what you’ve been reading, it covered both sides of the topic, and
- the debaters forced each other to provide deeper rationales for their beliefs.
Congratulations to fiduciary skeptic and business coach Tom Hegna, and fiduciary advocate Knut Rostad, co-founder of the Institute for the Fiduciary Standard. They provided a rarity in our online world: a fair hearing on a complicated topic.
This is not to say either of the debaters gave much ground, however.
Rostad started the debate by telling the audience that the benefits of a fiduciary standard are as settled as the science that tells us that cigarette smoking is bad for your health. The presumption: sales are bad for consumers’ financial health – and of course he cited the White House Council of Economic Advisors report saying that qualified plan and IRA participants were being overcharged by an estimated $17 billion a year due to hidden fees and sales charges.
Hegna countered with a three-pronged argument.
First, he said the marketplace contains no shortage of fiduciary advisors, yet consumers are still choosing to take their business to brokers and insurance agents. Who is the government to prevent them from making this choice in the future? Hegna may not have helped his argument when he agreed that smoking is, indeed, terrible for public health, but hey, Americans are still allowed to light up in all 50 states, and also gorge themselves on unhealthy donuts and fast food. While we’re forcing sales professionals to act as fiduciaries, should we also ban smoking, fast food and donuts?
Second, Hegna asserted (without providing any evidence) that fiduciaries are uninterested in serving less wealthy Americans. He told the audience that 45% of Americans have no savings and 80% have less than one year’s income in their portfolio. Without a broker or agent to sell them a product, he said, these unfortunate citizens would get no advice at all.
Finally, Hegna rejected the argument that only fiduciaries do what’s best for their clients. In a later part of the debate, he expanded on this point, saying that millions of insurance agents act in a fiduciary capacity at all times when they recommended products. Meanwhile, there are plenty of sleazy or conflicted fiduciaries. Bernie Madoff, Hegna said, was a fiduciary.
Rostad missed a huge opportunity here, to ask: If insurance agents are already acting as fiduciaries, why are their professional and trade organizations fighting so hard to protect them from being held to that standard? Why not embrace it instead?
In the back-and-forth that followed, Rostad said that there’s absolutely nothing stopping salespeople from being salespeople under the DOL rule; they would be completely free to self-identify as salespeople and continue to sell products as they have in the past. And, countering the idea that fiduciaries won’t work with “average” Americans, he said that there are many fiduciary advisors who work on a flat retainer or hourly basis who would be delighted to work with any unwealthy clients that the insurance agents and brokers wanted to send their way. Meanwhile, why couldn’t those poor, orphaned “average” customers take their business to Vanguard?