At the FPA Convention in Denver, I happened to run into a person I'll call The Producer. You may know him; The Producer was an important man in the profession back in the 1980s, serving on the IAFP board, often quoted in the trade press, sometimes by me, although it was a lot of work to clean up his language. We still kept in touch, but now you don't hear much about him.
I sat down next to him at the hotel bar, where I was ordering drinks for a few people at one of the tables. When I asked him how he was doing, he looked me up and down with heavy-lidded eyes.
"Congratulations," he said.
"On what?"
"Everybody is buying this mollyflubbing fiduciary crock of pinfeathers," he said, snorting into his drink. "Chirping willowleaves like you, who don't know a goldarned thing about this wiffling business, have managed to make it sound like a great idea."
"You don't think it is?" I ventured.
"It's the dumbest goldarned idea I've heard in all my years in this business."
"Coming from somebody with a life insurance background, that's really saying something."
The Producer held up his glass. "I call them like I see them."
THE 98% SOLUTION
"Okay," I said. "So tell me what's so wrong with everybody who gives advice putting the best interests of the customer first."
"For two percent of the population, I think it's a whistling great idea," he said. "But what about the other 98%?"
"I don't understand," I said.
"I knew that before you sat down. Tell me this: What kind of person gets up in the morning with the idea that he needs to go see one of those tweeting fee-only advisors?"
"People who understand that they aren't experts, and that with the help of a professional, they could be doing better," I said promptly. "People who understand the need to save and invest, who aren't doing it as well as they'd like. People who realize that their time is too valuable for them to do their financial stuff themselves when professionals could be doing it better and more efficiently for them."
"Exactly," The Producer said, as if I had made his point for him. He finished his drink quickly, laid the empty glass on the bar and turned to me. "And how many people that you know that fit that bunnyhopping description? What percentage of them has ever done what you just described?"
"Probably not the majority," I allowed after a few seconds of consideration.
The Producer snorted. The bartender poured him another drink.
"Maybe less than a third," I said, backtracking a little.
"Maybe closer to that fiddleheaded 2% figure I threw out earlier," he retorted. "Those are the easy ones. Anybody can sell advice to people like that, even those snorting fee-only advisors. A small number of people understand the importance of saving and investing, which means they tend to have more money than all the rest put together before they even go see a financial advisor. So it makes sense to charge them a fee on the assets they've been able to gather so far."
He leaned across the bar toward me. "But what about the rest?"
"What rest?"
"The people who haven't saved. The people who would never knock on the door of a financial advisor. The other 98% of people who, when I talk to them, the last thing on their mind is putting money aside for their future, because they don't believe it's possible and even if it were, they'd be scared to death of what the markets would do to them."
"What about them?" I said.
"They may not save and invest, but they buy stuff every bleeping day. So you have to structure the whole 'setting aside for the future' thing in a form that they understand, which is buying something. Maybe somebody like me can convince them to buy life insurance protection for their family, and maybe I can convince them to put money into the policy that will be there later, and if it's a really good day, maybe I can show them how, with an annuity, they can buy a thousand dollars worth of retirement income for less than their monthly car payment.
"And if they've totally lost faith in the markets, maybe I can show them a way to get back in the game without having to worry that the markets will flush down the toilet for the third time in recent memory. If I don't catch them in a weak moment," The Producer continued, downing his drink, "and convince them to buy something I'm paid to sell, they'll arrive at the future with nothing set aside."
POINT OF VIEW
"Couldn't you do all this and still look out for their best interests?" I ventured timidly.
"Sure, if I want to starve to death. Everybody seems to think that what I do is easy," he said. "If that were true, if everybody was already setting aside money for the future, there wouldn't be anything to talk about. The people I sell to are a hell of a lot tougher to convince of what they need to do than the people who knock on the doors of fiduciaries. They do the easy work, and people like me do a much harder job. You can't compare what I make on each transaction with what those violin-scraping fee advisors make for giving advice as if they were apples to apples."
"I might agree with you if all commissions were fully disclosed," I said.
"If that were the debate, I might agree with it," The Producer retorted. "But what fiduciary is really about is deciding how much people like me can make for what we do in this business and what we can sell to our customers. The minute you take the entire financial services world into this fiduciary thing, you eliminate all the incentives for all the people who overcome all the objections to putting money aside for the 98% of people who aren't wealthy. If you really care about the little guy, you'd be up in arms about it."
The bartender laid down drinks for me to take to my companions at the table. The Producer snorted contemptuously. He raised his hand and the bartender poured him another drink.
"So you feel threatened by this?"
"Hell no. If I wanted, I could hang out my shingle, tell people which mutual funds they ought to buy, call myself a professional and make damn good money. I'd be a fiduciary, for cripe sakes. This isn't about me; it's about the whole system that drives saving and investing down to the masses."
"I might be able to agree with you except for one thing," I said. "You say yourself that what you do is different from what 'they' do. So why not let 'them' go their fiduciary way and call yourself-proudly-a salesperson like you once did? Let people choose which kind of professional they want to work with and get rid of the confusion."
"If people like you could recognize, and tell people, how important people like me are to the majority of the population, I'd be fine with it," he said, turning away. "But everything I read is how to avoid a commission or insurance guy. The fiduciaries who work with the upper crust say the same thing to everybody who will listen.
"I'll make you a deal," he said over his shoulder. "You tell people how I see things, and maybe I'll think differently about the way you see them. Start a debate and see what turns up."
The Producer watched as two companions walked into the bar, one of them a prominent broker-dealer executive. He waved them over and then looked at me.
"Deal?" he said.
I picked up the glasses. "Deal," I said, and walked back to my table.
Bob Veres is editor of Inside Information (www.bobveres.com), which helps advisors become more effective, efficient and successful by identifying best practices in practice management and client services.
