US regulators are toying with the idea of placing a fiduciary duty on investment advisors. This would come as a shock to most Americans, who thought such a standard already existed for advisors, were TMZ ever to cover the story.
Currently advisors are subject to a standard of suitability, which means they can’t pile grannies cash into a 12 cent mining stock trading over the counter, but they are free load her up with their firms structured product of the week. Such products typical achieve some level of market protection by paying the firms ethically challenged PHDs anywhere between 3 and 5 times fair value for their imbedded puts. Overpaying for optionality allows the house to pay brokers handsomely to push their clients into the serially under performing piles of financial shit. This money flows from the broker to BMW, Tag Huer, Manhattans’ finest divorce lawyers and many a Hampton caterer.
Under a fiduciary standard brokers will be legally culpable if they knowingly push clients to invest in systemically under performing products just to pay the rent. So clearly fiduciary duty is a slam dunk that should be implemented yesterday….
Well no. See the United States of ‘Murica has a legal issue. The issue is our civil torte system sucks balls. America has more class actions in a given year than the rest of the world combine. WERE NUMBER ONE!!!! At something shit.
The fiduciary standard does make sense, but brokers need some level of confidence that honest mistakes or differences in investment philosophy won’t result in 9 figure civil action from some slick haired snake with no soul. Under fiduciary duty a broker who rightfully felt that the over taught notion of highly efficient markets was complete and utter bullocks would be undertaking economic suicide to design client portfolios that weren’t predicated on Stale dated misnomers and half truths.
Fiduciary standards absolutely make sense, but if we implement without first fixing our grotesque torte system we risk turning Google and ask Jeeves into the two biggest financial advisors in the country. And that my friends will end about as badly as a Jay Cutler forced pass into double coverage.
To be clear, I want the fiduciary standard, but am pragmatic enough to realize we need to fix the legal infrastructure first. Fiduciary would have many side benefits including – in my lone pained view – an end to pfof in equity and option markets as broker dealers can’t defend the systematic under performance they achieve on orders.
This would be an awesome debate in 2016. Sadly what we will get in its place is the appearance of debate around wedge issues, lies, fear mongering, Sarah Palin’s illiterate right wing ramblings and 45 minutes a day of thoughtful commentary on Hillary’s wardrobe.
Fuck us all.