Advice or selling? Why language matters in fiduciary battle

The marketing come-ons of broker-dealers and insurance companies send this message: “We are financial advisers you can trust.” But dig through court documents and the same companies argue something quite different: “We are just sales people.”

The language gap helps explain what is at stake in one of the most important consumer protection initiatives of our time – laying down rules of the road for conflict-free retirement advice. That is the goal of the U.S. Department of Labor’s (DoL) new fiduciary rule, a key initiative of the Obama administration that requires retirement advisers to put their clients’ interests ahead of their own by eliminating conflicts of interest on retirement accounts.

And the rule has teeth – it permits consumers to sue advisers if they do not think they have met their fiduciary obligations.

Firms must comply with the new rule no later than April 10, but financial services opponents have been sending up smoke signals that they expect the new Trump administration to put on the brakes or move to kill the rule. That certainly would provoke a new round of legal battles.

The message that customer-centric advice is important is slowly making its way into public consciousness.

But absent a tough rule with enforcement mechanisms, retirement investors will find it very difficult to understand the protections they may – or may not – be getting from financial services firms. That much is clear from a new report by the Consumer Federation of America (CFA).

The study underscores the contradictions between the marketing pledges of financial providers to put the best interests of clients first with the positions they have taken in legal challenges to the DoL rule.

The CFA reviewed marketing language on the websites of 25 brokerage and insurance firms, all of whom are members of two key trade groups challenging the DoL rule – the Securities Industry and Financial Markets Association (SIFMA), and the American Council of Life Insurers (ACLI). The firms consistently describe themselves as financial advisers or consultants, and many claim they put the needs of clients first.

But in court cases challenging the rule, the self-descriptions of these firms are different. Take, for example, the industry’s legal challenge of the DoL rule in the U.S. District Court for the Northern District of Texas, a widely watched case. The plaintiff filings are riddled with language arguing that what they really do is sell products, rather than provide investment advice.

I go into more detail on the study in my Reuters Money column this week. If you are wondering whether a company you do business with speaks out of both sides of its mouth, download the report here, but it’s a who’s who of household names, e.g. – Janney Montgomery Scott, D.A. Davidson, Stifel, Wells Fargo Advisors, HD Vest, Baird, Raymond James, Ameriprise, Edward Jones, BB&T Scott Stringfellow, Chase, UBS, Morgan Stanley, Signator Investors (John Hancock Financial Network), Lincoln Financial.

If the Trump administration does water down or kill the DoL rule, we could wind up with a worst-of-both-worlds result: consumers who absorbed the message that conflict-free advice is important but have trouble determining that they are getting it because the new standard lacks real teeth.

In that kind of buyer-beware environment, there is a simple solution: retirement investors can demand the services of a fiduciary, or take a walk. You can ask any prospective adviser to sign the Fiduciary Oath, a simple, legally enforceable contract created by the Committee for the Fiduciary Standard. The adviser simply promises to put the client’s interest first, exercise skill, care and diligence, to not mislead you, and to avoid conflicts of interest. You can download the oath here.

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