If you watch the Big Bang Theory, my favourite programme ever (apart from Dukes of Hazzard – nothing is better than that!), you’ll know about Sheldon’s cable show ‘fun with flags’.
Well recently some people have been having ‘fun with words’. People have been talking about ‘putting clients’ interests first’. That this was even a discussion was a bit of a revelation for the team at WealthDesign, because we never realised it was a new thing.
The basic idea is that where the outcome for the adviser and the client are in conflict, the right thing to do is ensure the outcome favours the client. Do the right thing and so on. Rob Everett from the FMA recently said that ‘clients’ interests first’ “can mean different things to different people, in different situations”.
No, it doesn’t.
I prefer a higher standard – ‘clients’ best interests first’. This one can be much harder to meet if you can only sell one or two product lines, rather than compare and choose from a wide range of providers and products.
For example, if you go into a bank that sells its own KiwiSaver, and the teller suggests you change to that KiwiSaver, they are considered to be putting your interests first, because they don’t receive a commission for making that sale. The bank product is not being chosen by the teller over another product, because they can’t sell any other product, so there is no conflict.
What if that bank’s KiwiSaver has much higher fees than the one it replaced? It might have much poorer returns (we know which KiwiSaver schemes have consistently underperformed) than the one it replaced. The bank teller doesn’t compare the old scheme to their one. They won’t give a written statement of advice outlining the pros and cons of switching. They won’t tell you that their salary-not-commission job is tied to targets, bonuses and KPIs that require them to sell things. They are having ‘fun with words’, at your expense. That sale would not meet the standard of ‘clients’ best interests’.
And this is the problem.
If you go to a doctor or a lawyer, and they said to you “just so we’re clear – my duty is to put your interests first, but I won’t necessarily be acting in your best interests”, would you take their advice?
At WealthDesign when we say we put our clients’ best interests first, we think it means what you think it means.
WealthDesign – a life well planned