SCOTT REED: Financial advisers should always put their clients first

My cousin bugged me for a year or more to watch the television show “House.” I thought the name was kind of dumb and I refused to watch on principle. I also felt like I didn’t have any more time to watch another TV show.
Then one day more than a year ago I was home alone. My family was out somewhere and I didn’t really know what to do with myself. I sat in my most comfortable chair – the one they say is mine but my children didn’t ever get that message. I propped up my feet and I turned on the TV.
That’s when I met House, which is the last name of the main character. And he is rude, cantankerous and anti-social. He is played to perfection by Hugh Laurie. House is also brilliant. His job is to solve medical problems that confound conventional thought and medicine. Often by the time the show ends the answer to the problem is simple, but the path to the answer is very complex.
A couple of weeks ago, House was working on a patient. Nothing he and his team tried had worked. House wanted to stop the patient’s heart and “kill” her, then try to restart the heart to test a theory. The other doctors insisted that they must start treating the symptoms of the patient or the patient would die. House said in his snarly, obnoxious way, “If we just treat the symptoms the patient will die anyway; it will just take longer. We have to treat the problem.”
I don’t know how many different areas of our lives that statement can apply to, but it is a lot.
It certainly applies to the issue of financial reform. Our Congress passed a bill for financial reform recently. Much of it is good, some of it not so much. Everyone seems to have his or her heart in the right place, but much of the time we seem to be treating the symptoms instead of the problem.
Standard of care
As you might expect, I have a particular issue on my mind – it is the “Fiduciary Standard of Care” issue. Congress has called for a study to be done to see if there really needs to be a uniform standard of care for advisers that includes the fiduciary duty to make decisions that are in the best interest of the client.
However, Congress also has been willing to enact a mountain of rules and regulations that will attempt to protect investors from those financial advisers who have acted in a way that is not in their best interest. For instance, our government is going to try through legislation to limit an investor’s access to certain financial instruments that have previously been sold to an investor inappropriately.
The problem is that much of the time it is not the fault of the investment, but the fault of the adviser for selling the investment inappropriately. To treat the problem, you don’t take away the inventory of potential investments – you require investment professionals who claim to give investment advice (as opposed to selling investment products) to work under a standard of care that puts the clients’ interests above their own and you hold them legally responsible for their actions.
In my opinion, legally being held to a certain standard of care will change the actions of financial industry professionals and will significantly limit or erase altogether the need for Congress to legislate by product.
For the most part, investors buy what is recommended to them by those they trust, not necessarily by those they should trust. To fix the problem, we must make sure that the advisers that investors trust have the same legal responsibility that they are perceived to have by their clients. If Congress won’t make that happen after this new study is finished, then you can take matters in your own hands. Making sure you understand how an adviser makes his or her money and asking him or her to sign a statement of fiduciary responsibility for your account.
Getting your relationship right with your adviser should go a long way toward meeting your financial goals down the road.

Scott Reed, CIMA, AIFA, is CEO of Hardy Reed Capital Advisors in Tupelo.

Scott Reed

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