The financial services industry spends millions each year in Washington D.C. to prevent laws requiring them to “Act in the Best Interest” of their clients. And now, one battle has been lost. The new fiduciary rule makes it illegal for financial advisors to swindle clients in certain situations; ones that involve retirement money. The change will drastically improve the industry’s ability to serve the public and I’m extremely excited about it. I’m passionate about the topic of “Acting in the Best Interest” because I used to develop the very products that allow financial advisors to exploit their clients, such as Life Insurance, Annuities, and Mutual Funds. While creating these products I struggled with the morality of engineering them for an industry I knew had lost its way. Now, under the new law, many of the products I once created will be illegal in many situations, and rightfully so.
The bulk of the problem is attributable to commissions and kick-backs built into the products that create conflicts of interest between the financial advisor and their client. Why? A financial advisor has a big incentive to recommend the products that pay him/her the most, whether or not they are really best for the client. Incentives are fine when we’re talking about hamburgers or used cars, just not retirement and financial security. Mc Donald’s employees don’t call themselves “nutritionists” and used car salesmen don’t call themselves “transportation consultants.” In my opinion, the very fact that commission based salesmen call themselves “financial advisors” is borderline fraud. Advice is defined as, “guidance or recommendations concerning prudent future action.” Since the products financial advisors recommend are not prudent in many cases, what we have is an entire industry purporting to be something they’re not, by definition. Think about that, the very title they represent to the public is a lie more often than not.