I'm not a big fan of the current Congress. Too many of its members seem far more concerned about political posturing designed to garner votes than they do about doing what is best for our country. Nevertheless, it seems even Congress, or at least one member, "gets it" when it comes to financial service providers who both sell products AND give advice to their clients.
Rep. Robert Andrews, D-N.J. said at a hearing last week that advisors who provide advice on IRAs should be independent of companies that sell investments. "I don't think somebody should be giving advice on your retirement money if they serve two masters, whether it's your 401(k), your IRA or your defined contribution account," said Rep. Andrews.
Now to me this is a "Duuuuhhhh" issue, as in "Well of course!" Why on earth would anyone think that they are getting objective advice from an advisor associated with a mutual fund company, brokerage firm, insurance company or other seller of financial products, especially when that advisor is compensated, often handsomely, for selling those products to their clients.
Now, 20-years ago I would have stated firmly and with profound conviction that legislation just isn't necessary because the absolute superiority of a fee-only, independent advisor model over a commissioned based model was so self evident that it would be only a matter of time before stockbrokers and annuity salesmen went the way of the dodo bird. Investors would just stop using them. Hah! Shows you what I knew back then - not much when it came to human behavior as it turned out.
The reality of the modern financial services business is that it has changed very little over the last 20 years regarding the issue of compensation. Fee-only, independent advisors still make up only a small percentage of the total number of advisors. Why? Likely, because most advisors just can't resist selling lucrative investment products to their clients, and most clients just don't seem to understand or care that the advice they receive is tainted by those juicy commissions.
