Power To The People... Via The Fiduciary Pledge

Most of the debate about financial overhaul legislation has focused on the impact on what the big banks do. One part of this legislation, that would affect consumers directly, hasn't received much attention - a requirement that stock and insurance brokers act in their customers’ best interest.

A reasonable thing request of someone handling your money...I mean, doctor's have the Hippocratic oath. So why shouldn't brokers have something similar when money, or lack their of, may affect your health just as much.

The issue is whether brokers should be required to put their clients’ interest first — this is known as fiduciary duty. "Investment advisers" are already held to this standard. But brokers at firms like Goldman Sachs, Merrill Lynch and Morgan Stanley Smith Barney, or those who sell variable annuities, are held to a lesser standard, one that requires them only to sell their clients investments that are considered “suitable.” Many times, these investments are lucrative for the broker and the clients bear the expense.

With increasingly complicated products and the multitude of professionals ready to sell their services, it has become more difficult for consumers to understand where their advisers’ loyalties lie. It's very easy for a lowly stock broker to buy a nice suite, cleans up, and look and act more like a financial adviser. "The fact that some brokers can wear two hats with the same client — that is, provide advice as a fiduciary in one moment, but recommend only “suitable” investments in the next — only adds to the confusion, experts said."

According to the New York times, as part of the more sweeping effort to overhaul Wall Street, both houses of Congress included measures that would subject brokers to the tougher standard. On the surface, both the brokerage and financial planning industry appear to agree that advisers of all stripes should be subject to a consistent fiduciary standard. But behind the scenes, the groups are divided on how exactly it should work, while the insurance industry is opposed to a fiduciary standard altogether.

A big reason the insurance industry may oppose this is because if they sell a variable annuity and are subject to fiduciary duty, that means they will probably have to fully disclose the compensation they are getting. I guess it's very lucrative selling annuities to unsuspecting widows. So why would they want to bring attention to the excessive incentives they have to mis-sell the variable annuities, an area that has been the cause of regulatory problems in the past.

So what can someone do given congress may not be able to pass anything? I found the following Fiduciary Pledge on the NY Times. It's also attached as a downloadable document on this blog.


The Fiduciary Pledge

I, the undersigned, pledge to exercise my best efforts to always act in good faith and in the best interests of my client, _________________, and will act as a fiduciary. I will provide written disclosure, in advance, of any conflicts of interest, which could reasonably compromise the impartiality of my advice. Moreover, in advance, I will disclose any and all fees I will receive as a result of this transaction and I will disclose any and all fees I pay to others for referring this client transaction to me. This pledge covers all services provided.


Signature ________________________________


Name ________________________________


Date ________________________________