Do ethics really have no place in a relationship of trust?

In Canada, what we have at the moment are standards that even imbeciles could execute, but outcomes that mostly only experts could fully understand or, in  a moment of madness, would wish to own.

Best interests standards would likely lead to solutions that would pass the judgement of experts but that can be generically understood and accepted by the ordinary individual without legal consequence.

Best interests standards, contrary to the rote propaganda being churned out, would lower costs, increase standards, improve sophistication of output and reduce legal liabilities and negative investor outcomes.   They are the future!

In “another” recent Barbara Schecter article on the increasingly bubbly topic of industry faux pas leverage feeding frenzy etc and best interests standards, Barbara attributed the following to David DI Paolo, a partner at Borden Ladner Gervais (David Di Paolo direct quotes in bold):

that regulators are preparing to treat all retail investors as “completely vulnerable”…advisors will be held to a standard comparable to that imposed on those who administer funds for children..”

The truth is, this is not about treating individuals like imbeciles (which would appear to be the insinuation) but about treating individuals with respect. 

It is also not about retaining the very low suitability standards of current regulation, but about improving the professionalism and the processes of advice, and the accountability of that advice.    

To suggest that best interest standards would lead to investors being treated as vulnerable children is disingenuous or as Edward Bernays would say “propaganda”.  This does little to further the debate and risks deliberately misleading the public. It is an argument drawing from the depths of an ignorance over the nature of best interests standards and the different processes and structures required to deliver such.   As such it is drawn from the same well as the standards he is protecting.

What is true is that the industry will not be able to continue to use transaction process standards to deliver services within a best interests regime.  But to suggest that this means treating individuals as vulnerable children applies only to situations where individuals are indeed cognitively vulnerable.  Best interest standards will require well defined processes and structures for delivering wealth management solutions and advisors will be accountable for the integrity of those processes.  These structures will be able to provide a wide range of outcomes that are structured to manage the risk and return profiles of various financial needs while allowing some reasonable adjustment for the wide range of risk and performance preferences.   It will force advisors to specifically define what their service process is, its limitations, its risks and will place a much greater burden on the education of its clients, especially where more sophisticated strategies and securities are recommended. 

As I have said before, in predatory parlance, “why are investors deemed to be asking for it?”   Is David Di Paolo really saying that ethics have no place in a relationship of trust?  An ethical outcome would consider by its very nature the interests of the client as the sole overriding objective of the advice. 

Under the present system what are important are the transactions rules that facilitate the product.  Under best interests standards what is of foremost importance are the client’s interests and hence the responsibility for the integrity of the processes, structures and disciplines used to plan, manage and structure assets to meet an investor’s financial needs and investment objectives given their risk and performance preferences.   The transaction is immaterial and secondary under best interests and overriding and of foremost importance under current standards.

What we have at the moment are standards that even imbeciles could execute, but outcomes that mostly only experts could fully understand or, in a moment of madness, would wish to own.  Best interests standards would likely lead to solutions that would pass the judgement of experts but that can be generically understood and accepted by the ordinary individual without legal consequence.

Minors and the cognitively challenged will always be accorded a higher level of protection, irrespective and it is impugning to use their plight to support spurious and seriously conflicted arguments.  Di Paolo’s arguments and those of his ilk are not only disingenuous and conflicted but display a universal ignorance of the physics, realities and potential of best interests standards outcomes.  

Best interests standards, contrary to the rote propaganda being churned out, would lower costs, increase standards, improve sophistication of output and reduce legal liabilities and negative investor outcomes.  

“Best interests standards represent a giant and inclusive step for all Canadians, but the transaction remains, for the moment, a subjugated fate for a great many!”

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