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It has been impossible to ignore the DoL “fiduciary rule” news out of the U.S in recent weeks. It has been the dominant story in financial services, and clearly the jury (in the form of market participants) are still divided as to whether it is enough, or insufficient, or perhaps a complete waste of energy all round.
It has raised the question, yet again, of whether the financial services industry is close to being there yet. Are we close to finishing regulatory change because we are close to being a profession?
I’d suggest the answer is “nope…not by a long shot”. And we never will be simply because it is not an either/or choice. There will be an industry and a profession – it is not one to the exclusion of the other.
But! Consider how far we have come in the last decade. If we look at the investment side of the advice world for example, there is little doubt that the progress from product-focus to defined fiduciary role has been extraordinary in reality:
Often within the industry we have vigorous debate about the right way forward, and whilst the debates rage there is generally a perception of an industry in conflict or lacking in vision of its place as a profession. I don’t believe that to be true. The debate is usually about what is the right way forward…not a debate about where we are going forward to. In fact, more often than not the apparent conflict between regulators and industry is only a conflict about how we shall progress, not a conflict over the vision for the future.
At present much of the debate centres upon simply whether one is or isn’t a fiduciary, and if not, what one has to do to get there. When that particular debate is eventually resolved we will begin perhaps to get close to being able to address the role of the professional adviser in the wider financial services industry. The thing is, the financial advice industry is not the exclusive domain of fiduciaries. And nor should it be. Any regulator, or professional body, or market participant who feels that financial advice can only be delivered by a fiduciary has lost touch with consumers and what they want.
Let’s consider the world of medicine briefly, as one where the role of the professional is clearly recognised and defined. In fact it is virtually a protected profession, with an extraordinary (and in my view unhealthy) level of self-regulation. Let’s call the qualified medical doctor their version of a fiduciary.
Certainly there are some things that only “the fiduciary” can do. Like cut you open with a scalpel. Only the professionally qualified ones can do that because there is a very high risk of you being dead if some unqualified twit who has been to two night classes was allowed to have a crack at it simply because he felt confident. That same person who is ineligible to wield the scalpel can however engage in delivering acupuncture…the level of qualification and oversight required depends on the potential for harm doesn’t it?
But….if, as a consumer, I held the view that conventional treatments were not for me and I wanted to have alternative therapy which was not recognised by the protected and tightly defined professional group, who are they to say no? Maybe going to a naturpoath and following a herbal treatment plan will work for me, and it should be my choice to ignore conventional pharmaceutical treatment if I wish. Equally, I can elect to simply go to a high street shop and purchase some medicine for relatively easy to remedy issues – most of which I probably self-assessed using Google.
When one steps back and takes a wider view of the consumers needs and desires and expectations of a service industry, such as healthcare in this brief example, it is apparent that there is both an industry and a professional element within it. It is also apparent that what makes the profession stand out from the industry, without either the industry or the profession causing confusion or harm to consumers is that there are clear demarkation lines between them. Pharmacies are regulated, and only allowed to operate within certain parameters. So too are doctors. So too are recognised alternative health providers.
So it must be with financial services. There must come a time when there is a clearly identified aspect which is reserved for qualified professional practitioners, simply because the risks are too significant for the unknowing consumer. But at the same time there should continue to be high street shops offering over the counter solutions to simple needs too, as not every problem requires comprehensive analysis and planning. The industry needs to have the regulatory structure to cater for alternative choices for consumers, while still providing basic protection within each realm of consumer choice.
So while we debate whether establishing a suitable fiduciary standard is the finish line, the reality is the industry structure needs to evolve much further to capture and manage the plethora of alternative “investment” providers such as property spruikers, forex traders and the like. Tighter controls need to be figured out for the “over the counter” solutions offered by retail outlets such as trading banks and scheme providers.
More regulation is actually needed before we will get to the point of having a recognised profession within the industry. We still have a long way to go….