Scarcely 100 years ago, there was “Trouble in River City” and “the Wells Fargo Wagon was a-comin’.” Oddly enough, the Broadway musical “The Music Man” mirrors the modern era’s financial services industry and its anticipation and anxiety about higher standards of care for client-facing practitioners. It is intriguing when life imitates art.
But it doesn’t have to end with imitation. It can provide excellent and useful ideas for change – if only we follow the essential plot lines and resolve any discordance. “The Music Man” is often considered one of the most perfect American musicals, capturing a nostalgic time in our history. In the story, there are multiple levels of tension requiring resolution. Music and plot lines are used as metaphors to explain River City and its people. River City is a town steeped in traditions focused on “this is the way it’s always been – and we like it that way.”
The extraordinary singer-actor Robert Preston portrays Harold Hill as the fast-talking out-of-towner ostensibly arriving to perpetrate another scam. In reality, he is just a good heart seeking the right woman! Of course, Marian the librarian is right there to fill that role. She is misunderstood and lonely, with a great deal to share, if only she can trust someone to see her for who she is as a person. The wonderful backdrop of this light drama is in the music and lyrics, wooing us through our auditory senses with tone, rhythm and syncopation that are in perfect pitch and harmony with the story.
Ah, harmony! Now there’s a word we don’t actually use much outside the world of music. In music, harmony reflects the technical reality that single notes, sung or played, can be lovely and magically transformative.
So, too, can disparate and even discordant concepts ultimately coalesce into a harmonious result reflecting differences, yet harmonizing into something much better than might otherwise be possible.
This brings my metaphorical musical musings to consideration of the different anxieties and points of view surrounding standards of care in the insurance, investment, advisory and planning segments of financial services. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act required the Securities and Exchange Commission (SEC) to consider – and if at all possible, harmonize – the fiduciary standard of care between the registered investment advisor (RIA) and the suitability standard of the registered representative (RR).
Concerns in favor of a fiduciary standard include examples of harm to customers for the failure to put the client’s interests above those of the (selling) practitioner. The insurance industry, often caught somewhere between the RIA/RR factions, is generally opposed to such a standard.
It is alleged that the level of advice is limited and insurance agents, whether newly minted or experienced and serving many diverse markets, shouldn’t be lumped into a single category of responsibility. A core issue, of course, is that a product solution that is suitable may not necessarily be in the client’s best interest.
Compensation and fees are often at the heart of conflicting positions over standards of care. One intriguing quote from a recent letter to the SEC from six prominent organizations championing elevated standards of care states that “… while opposition to fiduciary rule making is often presented as being motivated by concern over the well-being of middle-income investors, the academic literature strongly suggests that it is precisely these less wealthy, often less sophisticated investors who are most at risk from harmful practices permitted under a suitability standard.”
Can we harmonize – or make coherent and reasonable to our senses – just these few examples of the many differing positions that are in conflict regarding the appropriate standard for client-facing advisors and the anxiety-ridden consequences that often result? I don’t pretend to have the answers, but I have some suggestions as to the process of achieving harmonization:
1. Minimize demonization of the motivations behind the differing positions. Each faction has good counterpoints, but often makes assumptions about what’s behind the original proposition. Commissions are not inherently against a client’s best interest any more than charging a fee is a virtue. It’s not how we make a living – it’s how we honor our relationship with our clients and hold their interests at the same level as or better than our own “Golden Rule.”
2. Each faction should consider creating a coherent statement of purpose along with supporting facts and evidence. Minimizing apocryphal assumptions does wonders for resolving an argument!
3. A forum should be created in which the different positions can be shared and understood in a nonconfrontational environment. This is a good basis for understanding the likely congruencies while working through the discordant issues that might ultimately lend themselves to a pleasing harmonization. (It’s a shame health care reform didn’t get started this way!)
Or perhaps we should break out the popcorn and – streaming from Netflix – together enjoy the ultimate harmonic resolution offered in Meredith Willson’s “The Music Man.”