From a reader:

As a reader of yours, I find your views always interesting and well thought-out, even when I disagree. Thank you for sharing your thoughts, wisdom, and experience, as I truly believe you raise up the areas of thought you touch.

I have a question that I hope you will address on your blog, though the urgency is low. As a CFA and CFP working in a small RIA, I have been paying close attention to the debate about imposing a uniform fiduciary standard onto RIAs and brokers. I would loved to hear your thoughts about this topic, maybe addressing the following:

• Should brokers giving advice be held to the high fiduciary standard of advisers?
• Could a two-tier fiduciary standard work (i.e. codification of the Merrill rule)?
• The primary broker argument against the fiduciary standard, as I hear it, is that it would make services to retirement accounts unprofitable. Do you agree?

I hope to hear your thoughts on this published on your blog because I know that quite a few people with second or third degree connections (maybe first, but I don’t know) to the policy makers and lobbyists read your blog.

First, thanks — I know my reader base stretches into some lofty places, not that I deserve it.

There should be informed choice when choosing those that advise investors.? I don’t think that brokers should be held to a fiduciary standard, but I do think they should have to state to clients that they have a potential “conflict of interests.”? Clients don’t make money when trades occur, but brokers do.

The trouble is, retail investors are the dumb money.? There is a tension between allowing freedom and letting people get shorn by those that are more skilled.? Some financial products are sold not bought, and it is largely because people will not plan in advance for themselves.? We see that in life insurance all the time.

Here’s the other side of it: we can’t make retail investors smart.? In most transactions of life, the foolish get hosed.? We can’t protect people from being dumb.? If we did that consistently, our economy would probably fail.

The idea of “just prices” does not work.? It’s not flexible enough.? In the end, things work best when we let let markets work, but require extensive disclosure that most will understand, and some won’t.

Perfection is not possible in law or regulation.? If we get “pretty good” we have hit the top.? Enjoy pretty good where it exists, though I would encourage investors to use those that have to put your interests ahead of all else.

PS — there has to be a way to service retirement accounts — as with insurance contracts, some sort of AUM fee or trailer commission would do it, but not something based off of transactions…