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Is your Financial Advisor a NAIFA Member?
NAIFA On Putting Your Interests First
"NAIFA is lobbying against bringing insurance agents, securities-licensed professionals, and retirement plan services providers under a new layer of regulation that would be imposed by a proposed Consumer Financial Protection Agency. NAIFA also continues to play a leading role fighting proposals to impose an impractical fiduciary standard of care on registered representatives who offer securities products through their broker-dealer."
This quote comes from NAIFA's (National Association of Insurance and Financial Advisors) "Advocacy Brief 2010" flyer. NAIFA is a large trade organization made up largely of insurance agents. This organization is lobbying against a fiduciary standard with the arguments that it is "impractical" and that requiring a fiduciary standard will make financial services unavailable to many people. These are two of the hollow arguments that have been used to confuse the issue many times. In my opinion, financial advice that is not in your best interest is advice that is better made unavailable. Are you looking for advice that benefits an insurance company first, but at least it's affordable? This is not advice, it's a sales pitch. Let's allow this advice to disappear. The argument that not putting your interest first is for your own benefit is bunk. This organization has proved to not be on the side of the consumer. Do not believe opposition to a fiduciary standard to be any different.
Generally when a fiduciary standard is called impractical, it is meant that putting your interest as a client first is difficult to execute both for an advisor and from a regulator standpoint. It is correct that often it is difficult to determine what is in a client's best interest, and that at times advice does not work out as expected. And it is true that regulating a fiduciary standard does not mean that there will be no instances of fraud and abuse of clients. There will always be crooks in ANY profession. Nevertheless, a financial advisor who claims to hold a relationship of trust with clients should be required to do what's in that client's best interest. Another financial advisor may disagree with the advice delivered, but if the advice is based on well-thought out rationale, the advice can remain valid as in the client's best interest. It is no different than two doctors recommending a different course of action for the same illness. Arguing that a fiduciary standard (putting your interest before the company's) is impractical is a nonsense argument.
If your financial advisor is a member of NAIFA, ask them where they stand on putting your interest ahead of their own and their company's interests. Do they work for you? NAIFA is anti-consumer; they fight to keep from being required to do what's in your best interest. Take your advisor to task if they support NAIFA. It may turn out they do not agree with this position and are a member for other benefits. I think you have a right as a client to know where they stand.
Frighteningly, the "Advocacy Brief 2010" flyer also discusses NAIFA's efforts to fight a New York state regulation that would require insurance agents to clearly disclose all forms of commissions and compensation received by an insurance agent before and during the sales process to a potential client. This disclosure would require a client be given information about the nature, amount and source of compensation an agent would receive by the purchase of a product. Instead NAIFA would rather a generic compensation disclosure be required without clear details. Without clear disclosure, it makes it very difficult for you to judge whether advice is given based on your interests or based on a large commission check. General disclosure statements can prove extremely difficult to interpret and do not provide you the information you need to make an informed decision.
Senate Votes on Financial Reform
Yesterday the Senate held a cloture vote to begin debate on the Restoring American Financial Stability Act of 2010. As expected, the issue failed and voting largely followed along party lines. Interestingly, one Democratic broke ranks and voted against the measure. Even more interestingly, both Democrats and Republicans seem to be satisfied with the vote. Democrats see the vote as ammunition that Republicans stand with Wall Street instead of American families. Republicans are satisfied to have closed ranks and to force further negotiation and possibly some Democratic concessions despite their vote representing some political risk. This issue is long from dead. Both parties agree action is required, but the substance of the legislation has not been agreed upon by a wide margin. The Financial Times offers a very good analysis of the vote and issues here.
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