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“Good” vs. “Mad Men”

08/19/2015

The defense industry is not the most powerful industry in the world.  It merely produces the means to kill millions of people.  The most powerful industry in the world is the advertising industry.  It changes the way millions of people think and make decisions.

The objective of the advertising industry is to change the way people perceive reality and make decisions, usually buying decisions but not always.  Lobbying is obviously a part of the advertising industry.  Is it really any different to influence which arguments to buy in Congress or to influence which corn flakes to buy at the grocery store?

Currently, there is a debate in Congress and the investment world about the “fiduciary rule,” which requires the investment advisor to act in the best interests of the client.  NAPFA-Registered Financial Advisors gladly adopted that standard years ago and have pushed for the standard to be applicable to stockbrokers as well.

Stockbrokers are only held to a “suitability standard,” which means the broker can, for example, sell you a large-cap mutual fund that sends the broker and spouse to Hawaii on vacation, even though the expenses of that mutual fund are quite high, instead of a low-expense mutual fund — as long it is also a large-cap mutual fund.  Some describe that as receiving a bribe and having the client pay for it.

Stockbrokers are fighting the obligation to behave in a fiduciary fashion with clients.  This week, I see they are running TV commercials of a typical couple bemoaning the fact they never get to talk about their investments with another human being and are instead forced to question a computer program.  This is based on the argument that brokerage houses would be forced to supervise their stockbrokers so closely, so carefully, that it would be cheaper to simply fire the brokers, leaving nobody to help small investors except computers.

Hogwash!

The brokerage houses will undoubtedly break into smaller units and push the compliance responsibility down into those smaller units.  Would it be more inconvenient for the stockbrokers?  Absolutely!  Would it put them out of business?  Of course not!  Will it benefit the small investor in the long run?  Absolutely!

After this fiduciary issue is settled, then the advertisers can return to influencing Americans that sugared foods are better for Americans than healthy food or that only skinny young people can be beautiful or something else as harmful.  By the way, advertising companies also lobby that the investment industry needs regulation, but the advertising industry does not.

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