Imagine if everyone in the world had a fiduciary duty to act in your best interest MARKETWATCH 12:43 PM ET 2/6/2017
What life would be like if the fiduciary rule even applied to Starbucks baristas
We get cheated a little bit every day. Sometimes we get outright screwed.
It's not completely our fault, however: The people peddling us goods and services just know more about their products than we do. Yes, we can reduce this information asymmetry to some extent by studying up or even Googling for advice, but ultimately the consumer is almost universally at a disadvantage.
This knowledge gap is particularly troubling in financial services, due to the complexities of the transactions, the sums of money involved, and the disastrous consequences of screwing up our retirement planning. That was the idea behind the fiduciary rule (http://www.marketwatch.com/story/answers-to-17-questions-you-might-have-about-the-fiduciary-rule- 2017-01-18) requiring financial advisers to act only in the best interests of their clients. But the regulation, which was set to go into effect in April, could end up being weakened or scrapped altogether (http://www.marketwatch.com/ story/trump-economic-adviser-likens-financial-regulatory-regime-to-an-unappealing-restaurant-menu-2017-02-03), depending on how one interprets President Trump's executive order last week.
See:AARP calls Trump order on fiduciary rule harmful to its members (http://www.marketwatch.com/story/aarp-calls- trump-order-on-fiduciary-rule-harmful-to-its-members-2017-02-03)
And:Trump economic adviser likens Wall Street regulatory regime to an unappealing restaurant menu (http:// www.marketwatch.com/story/aarp-calls-trump-order-on-fiduciary-rule-harmful-to-its-members-2017-02-03)
There are good reasons to be at least somewhat wary of government regulation: Rules sometimes backfire, and there are almost always unintended consequences. In this case, the financial industry could, despite its history, even make the case that it's being arbitrarily singled out.
But can we really be against regulation that would reduce the degree to which people get screwed out of their money? After all, the rule wouldn't limit the menu of financial products, just the advice doled out about them.
Imagine for a moment what life would be like if the fiduciary rule applied to not just financial advisers but to everyone on the planet ...
ALL THE WORLD'S A FIDUCIARY: A play in one act
Scene 1. Starbucks.
CUSTOMER: Can I have a grande iced latte, please.
BARISTA: I'm afraid I cannot let you order that, sir.
CUSTOMER: What do you mean? You have served me a grande iced latte every weekday morning for the past six years, and there has never been an issue.
BARISTA: I'm sorry, but now that I'm a fiduciary barista, I cannot serve you that drink. I have a duty to only brew coffee in the best interests of my clients.
CUSTOMER: And it would not be in my interest for you to serve me an iced grande latte?
BARISTA: I'm afraid not. Though that iced latte was a suitable drink under our prior standards, it was costing you an extra $585 in fees annually.
CUSTOMER: Look, I appreciate that, but if I don't give me some caffeine right now I fear it will be in my interest to punch you in the nose. Wait, did you say $585?
BARISTA: No need to resort to violence, sir. Here's what I recommend as your fiduciary: Order an iced doppio that's the same two shots of espresso as in your usual grande iced latte, and then go over there and fill the cup with the milk we offer our customers for free. You'll pay $2.25 instead of your usual $4.50. And here's the thing: It's actually the same exact drink.
CUSTOMER: So you've been ripping me off for years?
BARISTA: Basically.
Scene 2. Real-estate agent's office.
REAL ESTATE AGENT: Don't take this offer. It's too low.
HOMEOWNER: What, two days ago you said there's no way the buyer would pay one dollar more. What gives?
AGENT: That was before I became a fiduciary broker. It's now my duty to actually put your interest ahead of my own.
HOMEOWNER: Wait, I thought that's why we're paying you a 6% commission.
AGENT: Um, yes, but that's just it. I am confident I can get the price up at least another $20,000. It will take a few weeks of hassle for me, and won't actually add that much to my commission, but ultimately it's in your best interest not to leave that 20 grand on the table.
HOMEOWNER: Thanks, I think.
Scene 3. Apple headquarters, Cupertino, Calif.
APPLE CEO TIM COOK: I had been planning to tell you today all about the magical new iPhone 8. But now that I'm a fiduciary CEO, I have to act in the best interest of you, my customers, and not just my shareholders. So I'll spare you the entire keynote slide deck my team has been working on for the past four months. You won't have to suffer through the music video of Siri and Jony Ive performing a duet of "You'll Be Back" from "Hamilton" the musical. Look, as a fiduciary, it's my duty to say you don't need an iPhone 8. Honestly, we're out of ideas.
Scene 4. Barbershop.
CUSTOMER: What do you think I should do with my hair? Should I stick with the same style, but maybe just take half an inch off?
BARBER: The haircut you've been getting is not in your best interest.
CUSTOMER: What! Why? Do I look weird or something?
BARBER: No, I mean financially. As your fiduciary barber, I cannot sell you that haircut. Based on how fast your hair grows, it will cost you an extra $250 a year in fees.
CUSTOMER: What are you suggesting? I should get one of those Flowbee things and cut it myself?
BARBER: No, that wouldn't be in your best interest, either. Here's what we do. We take off a little more off. An inch, say. That way you'll only need eight haircuts a year instead of 12 -- and you'll have plenty of money left over for iced lattes and iPhones.
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