Does your financial adviser have a legal duty to give advice that's in your best interests? The chances are that you think the answer to this question is "yes."
Chances are, you're wrong.
Not everyone who gives you financial advice has a duty to actually help you. The technical term for the true helpers is 'fiduciaries.' That means it's their legal duty to always put their client's best interests ahead of their own.
Two sets of regulators – the Labor Department and the Securities and Exchange Commission – have been examining what kinds of financial consultants should count as fiduciaries. Is your stockbroker a fiduciary? Is your financial adviser?
Here's the tangle: the Labor Department has jurisdiction over retirement accounts, and the Securities and Exchange Commission governs brokerage accounts. They have been separately looking into expanding the fiduciary standard to cover the vast majority of financial product pushers – stockbrokers, financial advisers, consultants – only to hit repeated push back. Chalk it up to Washington's reliable ability to confuse the best interests of the financial services industry with that of the 315m-plus Americans who need protection in everything from college savings strategies to retirement planning.
The problem, as it always is, is money. The financial services industry wants to protect the fees it receives from selling financial products to people who sometimes have no good reason to be buying them. A fiduciary should be able to tell you that you don't need to buy something – but the financial services industry wants to make room for people who can sell you things with very little thought for what they might do to your finances.
There are some financial helpers who are fiduciaries already. That includes certified financial planners and Registered Investment Advisors – usually known as RIAs. Their job description includes warning you away from any financial cliffs. Unfortunately, these people are a small part of the financial advice world – they make up less than 20% of the universe.
When most of us go looking for help with our investments, whether we go to the bank or the friendly professional we first heard about via a commercial on CNBC, we encounter people who call themselves financial advisers. That's a fancy word for a salesman.
These salesmen are not fiduciaries, but they do need to adhere to something called the suitability standard.
Think about it this way: say you are shopping for a dress or a suit. If you went to the store where a saleswoman was working to the fiduciary standard, she would have to sell you the best fitting, least costly outfit that's most appropriate for the occasion.
The store working to the suitability standard? It could be the most expensive item in the store, in need of costly alteration, but as long as it sort of fits and sort of looks good … hey, it's okay. At least it's not sitting on the rack any more.
It gets better. The financial services industry has been arguing that they should not be subject to the fiduciary standard as it is currently written; they believe that if they are forced to act in the best interests of their clients, they will not be able to give advice while making a profit.
But surely people enter the financial services industry with the goal of helping, right? Well, about that … the incentives are not tilted toward you. As I pointed out in my book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, brokerage Edward James promises recruits that "excelling here doesn't require a finance degree or a financial background" since, after all, brokers have "unlimited earning potential" as a result of "commissions based on sales" not to mention "incentive travel opportunities."
This sort of stuff has an impact. Let me refer to one of my favorite studies here, the dryly titled "The Market for Financial Advice: An Audit Study," a working paper published last year by the National Bureau of Economic Research.
A group of academic researchers devised sample portfolios and hired a group of actors to take them around to various banks and brokerages.
The result? Brokers missed very few chances to get it wrong, almost routinely recommending changes even when the sample portfolio was fine and promoting high-cost managed mutual funds over lower-cost index funds. "Our evidence suggests that adviser self‐interest plays an important role in generating advice that is not in the best interest of the clients," the paper concluded.
Oh, and the "best" part? The majority of testers, when queried, said they thought the subpar advice they received was so good, they would consider returning to the financial adviser with their own real-life portfolio.
This demonstrates why we need the fiduciary standard as it is currently written to apply to all sellers of financial service.
No matter how many well-meant personal finance articles are published, most consumers have no sense of what is in their financial best interests. Not only are those unsophisticated investors likely to fall victim to a persuasive technique, they are unlikely to ever figure out they received less-than-ideal advice – until, that is, real damage is done.
Think about it for a moment. We don't ask patients to wonder if their doctors are recommending one sort of treatment over another because they have a financial stake in it. In fact, if a doctor recommended a second-tier treatment because she had a financial stake in it and it turned out badly for the patient, it's unlikely a jury hearing a malpractice case would be sympathetic to the defense that the treatment was suitable enough.
But when it comes to financial advice, well, good luck to you. We somehow expect everyone to be an instant expert at exotic financial instruments.
So what's next? Well, we can all wait for the SEC to issue some guidance. Or we can keep our fingers crossed that the Labor Department will have better luck when, as expected later this year, they once again attempt to take steps to make the fiduciary standard apply to Individual Retirement Accounts. While we wait, the financial industry is lobbying heavily against the move to expand the fiduciary standard; they could lose millions of dollars if it goes through.
How much Congressional enthusiasm is there for this? Well, a bill was recently introduced into Congress that would force the Department of Labor to wait until the SEC announces its changes to the fiduciary standard. That would effectively stop the process for quite some time into the future. The proposed legislation's name? The delightfully Orwellian "Retail Investor Protection Act."
Only in Washington would protecting the consumer really mean protecting the financial services industry.
The validity of opinion polls in countries with authoritarian regimes is often questioned: how strong is the fear factor in responses? Do they just reflect respondents’ unwillingness to express opinions that don’t fit the official line.
But practice shows this not to be the case. In surveys recently conducted by Belarus’ Independent Institute of Socio-economic and Political Studies (IISEPS), even positive responses to a pointed question about President Alyaksandr Lukashenka only scored between 20%-50% approval. If we assume that a refusal to show approval of the Belarusian ruler required actual civil courage, that would make 50%-80% of the country’s population “heroes”, which is improbable, to say the least.
The Belarus government and official media have no official line on the Russian-Ukrainian conflict
As for responses to Russia’s policies on Ukraine, here in Belarus there is no official line whatsoever — both the government and the official media duck and dive, trying to avoid a clear "yes" or "no" on the issue. There can be no question of polls reflecting only Belarusian citizens’ fears in expressing their opinion. A superficial glance is enough to confirm that there is no doubt about the matter: Belarusians are on Russia’s side.
For the past 18 months, around 60% of respondents to a question about Russia’s annexation of Crimea thought that “it is the return of Russian lands to Russia, the re-establishment of historical justice” and only 20%-30% that “it is an imperialist invasion and occupation.”
When asked about the situation in the Donbas, a relative majority, 40%-50%, also agreed that “the people of Novorossiya have a right to self-determination”, while 25% supported Ukraine’s territorial integrity and only 10%-15% believed that “there is no Novorossiya: there is Russian aggression against Ukraine.”
It would be easy enough to explain this trend via the Belarusian state owned media’s powerful propaganda machine and Russia’s equally powerful electronic media. As I noted above, Belarusian media is notably more moderate than their Russian colleagues when reporting on the conflict in Ukraine, but it is still closer to the Russian media viewpoint than the Ukrainian.
October 2015: destroyed hospital, Slovyansk. CC BY-ND 2.0 European Commission DG ECHO Follow / Flickr. Some rights reserved.Belarus’ state media tend to avoid direct references to the armed conflict in eastern Ukraine, preferring to concentrate on positive comparisons between their country’s stability and their neighbour’s troubled situation. At the same time, major Russian TV channels are freely available to Belarusian viewers, so it is tempting to assume that their opinions are influenced by a combination of their domestic, and Russian TV.
In my view, this explanation is too simplistic. First of all, even those who distrust the Russian media still have a tendency to accept the Russian version of events; and second, other long term indicators are more fruitful sources of explanation.
Belarusian approval of Russia’s position is also coupled with a categorical and unanimous unwillingness to be at all involved in this conflict
When asked, “Who are you culturally closer to - Russia or Europe?” about three quarters of respondents pick the first option year after year. This has been the case since long before the Euromaidan.
On indicators of social distance, Belarusians have always considered Russians to be ethnically closest to them: they see Ukrainians as also very close, but in second and third place alongside the Poles. The ideological construct of an “ethnic trinity” embracing Belarusians, Russians and Ukrainians has been popular for years (again, long before Euromaidan) and is still shared by about two thirds of respondents.
And all this is in addition to Belarus’ political, economic and military alliances with Russia, and economic ties that are incomparably closer than those with Ukraine. In general, Belarusians’ support for Russia’s position can be simply explained by a greater closeness to their eastern neighbour.
“It’s not our war”
A closer look does not necessarily refute these first impressions, but it would at least suggest that Belarusians have a more ambivalent view of the conflict in Ukraine.
The figures showing support for Russia’s position are still noticeably lower than those among Russians themselves. In Russia, they are incredibly high, in the region of 80%-90%, as opposed to the 60% or so in Belarus. And Belarusian approval of Russia’s position is also coupled with a categorical and unanimous unwillingness to be at all involved in this conflict.
Belarusian state media tend to accentuate stability. (c) Sergei Grits / AP / Press Association Images. All rights reserved.Experts put the number of Belarusians fighting on both sides in Donbas at between a few dozen and several hundred. What do their fellow Belarusians think about this? It turns out that 6% approve of their fellow citizens fighting on the Ukrainian side and 8% - Belarusians fighting for the so-called People's Republics in Donestk and Luhansk, while 77% disapprove of any Belarusian involvement on either side. There is a similarly unambiguous response to the question of whether Belarus should allow Russia to take its troops through Belarusian territory, should it wish to invade Ukraine – 75% of respondents oppose it.
Respondents were also asked whether Belarus should join Russia in counter-sanctions against the EU, but 65% believed that, “this is a conflict between Russia and the EU; it has nothing to do with Belarus.”
Why is this the case? If, as the Russian media claim, “Russian people” are waging a just war with Ukrainian “fascists”, and if a majority of Belarusians believe this, why shouldn’t they provide aid to this “just cause” and be willing to suffer for it? Why do they instead point out that “it’s not our war”?
The public mood is clear: about a quarter of Belarusians surveyed say they would use armed resistance “if Russia tried to use force to annexe all or part of Belarus’ territory”
It’s interesting to compare the responses of people from all three countries to a question posed by independent polling organisations this year: “Are Russia and Ukraine at war?” In Russia, 25% of respondents answered “Yes” (65% - “No”); in Ukraine, 63% said “Yes” and 18% - “No”; in Belarus, meanwhile, 44% said “Yes” and 46% - “No”. This almost even split is the crucial difference between Belarus and its neighbours.
And then there is Lukashenka
Lukashenka’s manoeuvres over the conflict correspond pretty closely to public attitudes. The level of approval for this policy is considerably higher than his general electoral rating: the opposition is critical of many of his actions, but not of Lukashenka’s policy vis-à-vis Ukraine.
So why does public opinion, which supposedly supports Russia in the conflict, not nudge its government in the direction of Kyiv, and why is the opposition, which supports Ukraine, not disgusted by the government’s manoeuvres in favour of Moscow? Because there is in fact a consensus: “it’s not our war”.
Images like this road near Donestk Airport have come to haunt many in the post-Soviet space. (c) Igor Maslov / VisualRIAN. All rights reserved.The opinions expressed by respondents on their president’s policy towards Ukraine only confirm this consensus: many more people approve of it than would give him their general trust or vote for him.
Meanwhile, in April, the Belarus parliament passed a number of amendments to the country’s Criminal Code (which entered into force in May) providing for the criminal prosecution of Belarusian citizens who fight in Ukraine on either side of the front. There have been previous attempts to call them to account by putting pressure on their families, but the existing law only covered mercenary activity.
Mercenary activity was difficult to prove, and not all those fighting were mercenaries to begin with. But now the very fact of taking part in military combat, for whatever motives, is a crime in itself.
Under a new law, Belarusian citizens who fight on either side in Ukraine will face criminal charges
Oddly enough, as Interior Minister Igor Shunevich pointed out during the debate on the amendments, there have already been 28 prosecutions for this offence, involving 130 people, even before it reached the Statute Books. (It’s a strange thing, the Belarus judicial system: there’s no law against something, but people are prosecuted for it.)
But now there is a law, and on 5 May Belarusian citizen Taras Avatarov, a member of Ukrainian far-right Pravy Sektor (literally: Right Sector) volunteer force was sentenced to five years in prison for the illegal import of arms and ammunition.
Is Belarus Russia’s next target?
It’s worth noting that Russia’s actions in Ukraine (and actions supported by Russia) are making many Belarusians worried that they might be next.
Here we may refer to both public debate and Lukashenka’s 2014 statement that “if Putin comes here, who knows what side Russians will fight on,” as well as the fact that the country’s new military doctrine includes, among other threats, a reference to “hybrid wars”. The Belarusian government, however negative its attitude to NATO, has never suspected that alliance of turning to hybrid warfare.
about a quarter of Belarusians surveyed say they would use armed resistance “if Russia tried to use force to annexe all or part of Belarus’ territory.”
And the public mood is clear: about a quarter of Belarusians surveyed say they would use armed resistance “if Russia tried to use force to annexe all or part of Belarus’ territory.” What is interesting here is not even the figure (not 100%, but not insignificant either), but the fact that it coincides almost exactly with the number of people ready to resist a military invasion by NATO forces. Evidently, neither cultural closeness nor the invincible power of Russian TV have any effect here.
Another remote and indirect consequence of these concerns is Belarus’ unwillingness to allow a Russian military base to be built on its soil. Who knows what use the Russians might put it to?
Soviet Belarus and un-Soviet Russia
Talking of causes for concern, there are two that we should look at. One is classic, and affects the pro-Europe element of the Belarusian public. These people may even be sentimental about Russian culture, but in general they are opposed to Russia on ideological grounds: the conflict in Ukraine triggered a conflict between Russia and Europe.
But there is another factor here, a Soviet one. Belarusians have remained a much more Soviet people than Russians, and the tumultuous nation-building in both Russia and Ukraine scares them: they don’t understand it.
If we are talking about the majority of the Belarusian population, they see two neighbours, even brothers, who have both lost their minds
Recently, while chatting with a Russian expert, I asked him how Russian mass consciousness can combine such conflicting ideas as “Ukrainians are also Russians” with Dmitry Yarosh and Pravy Sektor, Nadiya Savchenko, the Maidan and someone jumping around chanting the old saying: “If he doesn’t jump, he’s a Muscovite”. Are these people also in favour of the far-right ideal of “Russia for Russians”?
“No,” he said. “In Russian mass consciousness, Russian-Ukrainians are the guys in Donbas. Then there are Banderites who used to hang out in western Ukraine. But then they took over Kyiv and declared war on the Russian-Ukrainians in Donbas.”
“So what nationality are Banderites?” I asked. “I told you,” the expert laughed, “They’re Banderites!”
For most Belarusians with their Soviet mindset, however, “Banderites” are just Ukrainians, and the Ukrainians in Donbas – are also seen as Ukrainians.
There are undoubtedly people in Belarus who are in complete agreement with either the Russian or the Ukrainian position; these people include those Belarusians who are fighting on both sides in Donbas.
But if we are talking about the majority of the Belarusian population, they see two neighbours, even brothers, who have both lost their minds. “The Big Brother”, a.k.a Russia, who is closer to Belarus, is seen as being “more right” in this conflict, but ultimately, in the final analysis, both sides are seen as wrong.
The recklessness of “Big Brother” is also dangerous, and not only in terms of what he has already done, but the fact that once on a roll, he has no idea (and Belarusians have even less) where this recklessness will lead. God forbid, it might even lead him into Belarus.
So it is better to keep away from this conflict, and hope that the warring parties will both come to their senses and make peace with one another, which will be better both for them and us.