Another Executive Order

Writing in Forbes magazine, Nathan Vardi puts it this way:

“A separate executive order seeks to halt implementation of a regulation that forces fiduciary responsibilities on financial advisers, forcing them to always act in the best interests of their clients. The financial services industry has long argued that the fiduciary rule makes no sense because it limits options for investors and retirement savers.”

New rules, set to go into effect in April would require financial advisers to act as fiduciaries. President Donald Trump issued an executive order demanding that the new administration find ways to keep these rules from going into effect.

This mysterious jargon requires a word of explanation. After the word of explanation, the executive order has no mystery at all.

When you go to a professional for advice or help, should the professional offer advice that helps you or himself? What should you expect?

If the professional is a fiduciary, he or she must offer advice that benefits you. Your dentist should tell you how to take good care of your oral health, not suggest treatments that improve her bottom line. Your dentist should not tell you to have a root canal done on a healthy tooth, even if she needs to pay for her new boat.

In American law, a salesclerk in a clothing store has no fiduciary responsibility. The salesclerk might try to sell you whatever gets him the best commission. When you buy your next suit, you might be a little watchful. Even so, an honest salesclerk might tell you that the less expensive sweater looks better on you and should last just as long.

What about a financial adviser? If you ask someone in the financial services industry to help you save for retirement, should the adviser act more like a dishonest salesclerk or more like a professional adviser?

The about-to-get-strangled regulations say that a financial adviser should give you advice that best helps you save for your retirement. The new executive order gives the go-ahead for financial advisers to tell you what works best for their retirement.

Your adviser can urge you to put your hard-earned savings in an instrument that gives the richest return — for him.

Does making a financial adviser a fiduciary “limit options for investors and retirement savers?” Yes. It forces them to consider only investments designed to work for us, instead of giving us the freedom to choose investments designed to work better for our brokers.

Jewish law has something to say about fiduciary responsibility. According to Jewish law, even a seller must disclose — not conceal — defects in merchandise (Mishnah Bava Metsiah 4:12).
Maimonides formulates the rule succinctly: “It is forbidden to deceive people in buying and selling, or to mislead people; whether non-Jews or Jews are equal in this matter. If he knows of a defect in what he sells, he must inform the buyer. Even to mislead people verbally [without making any transaction] is forbidden.” (Laws of Sales 18:1).

Jewish law forbids giving anyone inappropriate or self-interested advice. The Torah commandment, “do not place a stumbling block before the blind” (Leviticus 19:14), according to Rashi, means “do not give inappropriate advice to someone who is blind about a matter.”

Even if the person just asks you. Even if the person has not hired you for your advice.

Of course, a financial adviser should look out for the client’s best interests. But if this executive order is implemented, that might not always be the case.

Eliezer (Louis) Finkelman

 

Louis Finkelman, a contributing writer to the JN, teaches literature and writing at Lawrence Technological University in Southfield and serves as half of the rabbinic team at Congregation Or Chadash in Oak Park.