I’m a firm believer in the art of acting. Some people can do it really well. Others, not so well.
Peter Sellers falls into that first category. He was so gifted as an actor that he played, in convincing fashion, multiple and divergent roles in Dr. Strangelove. He wasn’t merely wearing different hats, he was wearing different faces. Now that’s acting!
It’s also make believe (not his acting, but the movie). We allow ourselves to willingly suspend our disbelief, if only for a couple hours, so that the movie can entertain us. It’s a lot more difficult to pull this caper off in real life.
Oddly, this was the first thing that occurred to me when I heard Rick Fleming, SEC Officer of Investor Advocate tell of his discomfort with dual registration.
Fleming said, “That’s where this problem started,” when speaking before a small room of invitees at TD Ameritrade’s Advocacy Leadership Summit about the issue of the fiduciary standard (see “Fiduciary Standard Quandary: First Avoid “Harm”onization,” FiduciaryNews.com, November 14, 2017).
I also thought about oil and water, but that might have been because it was nearing lunch and what I was really thinking was “oil and vinegar” dressing for my salad.
Ron Rhoades famously donned two hats to demonstrate the impossible paradox of dual registration. Dual registration is predicated upon the willing disbelief that one can seamlessly switch between sales (the broker hat) and advising (the RIA hat).
Within this conundrum sits the challenge of the fiduciary standard. At what point does a dual registrant flip hats from the suitability standard to the fiduciary standard?
And while we in the finance industry argue incessantly about how many suitability angles can dance on the head of a fiduciary pin, the public rolls its collective eyes, not in willing disbelief, but in frustrated apathy.
In Fleming’s mind, “it would be easier if we shift from ‘suitability’ and ‘fiduciary’ to ‘sales’ and ‘advice.’” His thinking, and many would agree, is that the average investor (remember, Fleming’s job is as an “investor advocate”), readily understands the difference between sales and advice.
While I have no doubt some, in the spirit of Peter Sellers, are quite capable of seamlessly transforming from one role to another, when the rubber finally meets the road, it’s almost impossible to mix sales and advice.
Like oil and water, the two have different densities. That (and polarity differential) is what keeps water and oil separated. Water molecules are too densely packed to allow oil molecules to combine with them.
In a similar way, the rigors of advice are too densely packed to exist comfortably with the singular mandate of sales.
Advice must consider innumerable factors, in fact, a different set of factors for every person for which advice is rendered.
Sales requires attention to several factors, too, but those factors revolve solely around the product (or the firm). Depending on which hat they wear, dual registrants must serve two masters – their employer and their customer.
It’s almost unfair to expect anyone to bear this burden. Yet, this has been the direction of the industry for nearly two decades.
In the interest of corporate sustainability in an ever-evolving industry, firms (especially larger ones) demand their representative embrace the art of acting. That attracts a different kind of personality than jobs that limit themselves by specializing in either sales or advice.
Again, to paraphrase Fleming, this is where the problem starts: Mixing sales and advice.
Sales and advice. Advice and sales. Even the average investor knows you can’t mix the two. With apologies to Kipling, “Sales is Sales and Advice is Advice, and never the twain shall meet.”
What happens when you try to mix them? You get “saladvice.”
And not even oil and vinegar can dress that up.