Juggling Dynamite

Further to my article here yesterday, a reader correctly points out that financial sector representatives calling themselves “advisors” with an ‘0r’ in North America do not fall within security regulations requiring them to put the best interests of their clients first.

This one vowel distinction from ‘advisers’ is of course farcical in terms of any meaningful notice to the public, and just another example of how sales firms have dictated terms and end run the prudent policy needed to help protect the public. See Why bank employees with impressive but misleading titles could cost you big time:

A common trick for misleading customers, according to Elford, is the banking industry’s use of the term “financial advisor” — spelled with an “o.”

He says “advisor” is an unregulated title that anyone can use, whereas the title “adviser” — spelled with an “e” — can only be used if the employee has a fiduciary responsibility to the client.

“Advisors can sell you the third, fourth, fifth or least beneficial product to you,” Elford said. “They do that a great deal of the time if it makes them more commissions, or if their bank manager is telling them they need to sell more of the house-brand product.”

The Ontario Securities Commission confirms that “adviser” is a legal term under securities law that describes a person or company that is registered to give advice about securities, whereas “advisor” is not.

In an email to Go Public, the Canadian Securities Administratorsconfirmed that it does not regulate most titles used by employees in the financial industry.

A larger point however, which is nearly always missed by everyone, is that even many registered ‘advisers’ in the fiduciary sense today, still work in firms affiliated with product creating arms that see their wealth management services as a distribution channel for the firm’s corporate underwriting.  Hence they use under the counter new issue fees and other pay incentives to encourage advisers to recommend the products they collect most on.

An even more endemic and unacknowledged bias is the fact that nearly all firms have a fee structure which collects more on equity and corporate debt allocations and products than government bonds and savings deposits.  Hence advisers and firm analysts routinely recommend that the bulk of client capital is allocated and held in these higher fee categories regardless of where we are in a given market cycle, regardless of extreme price risk suggesting negative and below safe deposit returns for years into the future, and notwithstanding the minuscule loss tolerance of most clients in the later years of their work and life cycle.

Finally, the bias inherent is most obvious in the simple fact that most firms/advisers will accept non-registered capital for management without recommending that the client use it to pay off their outstanding debt (mortgages, car loans etc) first.  Truly putting the best financial interests of the client first, will nearly always require that an individual use their cash savings to pay off personal debt before giving any non-registered funds to investment management services.  Worse, in many cases, advisors/advisers actually recommend that clients borrow funds so that they have more capital to invest with the firm.

These are classic hallmarks of the priority of firms to put their own financial interests ahead of the client’s, no matter what representatives may call themselves.  Buyer beware.

By greatly underestimating their greenhouse gas emissions, the livestock industry is placing the Paris Climate Agreement in jeopardy because we do not know just how big an impact this industry is having on climate change.  Here is a direct video link.

We don’t let pharmaceutical reps hold themselves out as doctors to the public for the same reason that we must stop letting product sales companies and employees market themselves as financial advisers.  Society and taxpayers cannot afford for this to continue.

The need to put income and title separation between product sellers (paid by companies) and fiduciary advisers (paid by clients looking for impartial financial advice) has been obvious since the financial crash of 1929 and Depression that it ignited.  The same point has been painfully reaffirmed over the last 30 years of recurring financial devastation since Glass Steagall divisions were relaxed in the late ’80’s and repealed outright in 1999.

Fiduciary advocates are once more urging the US Securities and Exchange Commission (SEC) to put critical divisions back in the system via the use of titles. It’s a foundational part of the road to increased financial stability.  See Fiduciary groups urge SEC to prevent brokers from using ‘adviser’ title:

When brokers hold themselves out as a “financial adviser” or “wealth manager” and when they advertise that they provide financial advice, it misleads investors, the committee said.

“[W]e recommend that the Commission require that any title they use clearly denote their role as salespersons,” the committee letter states. “Titles can range from ‘salesperson’ to ‘broker’ but may not include terms that suggest a level of advice beyond that of stimulating the sale of a product.”

Investment advisers, who must register with the SEC, are held to a fiduciary standard that requires them to act in the best interests of their clients.

Brokers, who register with the Financial Industry Regulatory Authority Inc., are held to a suitability standard that requires them to sell products that meet an investor’s objective and risk tolerance. But the standard also allows brokers to recommend investments that produce the highest revenue for the broker as long as the other elements of the standard are met.

The distinction can be lost on consumers, especially as brokers increasingly market themselves as providing holistic wealth management services.

“If you call yourself an adviser, then you should be fiduciary all the way,” said Kate McBride, a member of the steering group of the Committee for the Fiduciary Standard.