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Fiduciary Nuances


Most scholars believe The Ten Commandments was written over 2,000 years ago.  However, I believe that, if lawyers and regulators had been writing it, they would still be writing and every tree on this planet would have already been converted to paper.

During the Obama Administration, the “Fiduciary Standard” was adopted, and I was a big supporter.  It requires that financial advisors put the interests of the clients ahead of their own.  That’s great!  But, how do you document you are NOT a crook?  It is the classic question of how do you prove a negative?   The answer is more and more paperwork!!

Right or wrong should be more than a mere nuance.  If I steal from a client, I should have my hand chopped off.  If I do it twice, my other hand should be chopped off.

But, what about if I put a client into a mutual fund that is NOT the lowest fee?  If I did that because I got a kickback from the mutual fund company, then my hand should be chopped off.  But, what about I felt the higher-fee mutual fund was a better value, with more upside potential, than the lower-fee mutual fund?  If I cannot properly document that, I might lose a hand unfairly?

Registered Investment Advisors have always embraced the Fiduciary Standard, while stockbrokers have not.  Most wirehouses like Merrill Lynch, Davenport, Commonwealth, etc. were opposed to the Fiduciary Standard, primarily because they get huge kickbacks (commissions, 12b-1 fees, contests, etc) from the mutual fund companies.  Today, they are paying mere lip-service to the notion of a real Fiduciary Standard, while their lobbyists are working 24/7 to make it unworkable.

So, who is the villain?  The stockbrokers?  The lobbyists?  The regulators?  The legislators?  The lawyers?

Who is NOT the villain?  Registered Investment Advisors!


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