Like everything else in 2020, Halloween this past Saturday was more intense for parents. I put on my Captains hat and trekked through the neighborhood with groups of children wearing two masks at once. For anyone asking, “what’s your costume?” my reply was simply “isn’t it obvious?”
Unfortunately, most did not get that my costume was “Captain Obvious,” implying that my silly hat alone did not provide enough information. The point is, however, that for something to be obvious, it must be clear, transparent, and understandable so that information is conveyed without obfuscation. The laws that govern advisors and the ETF industry require transparency, disclosure and fiduciary responsibility. In this ETF Think Tank research note, we explore the fiduciary and disclosure requirements of the ETF industry and ask the simple question: “why aren’t politicians held to the same standard as financial advisors?”
No (Governing) Body Knows
This note was written before the election and published the day after. That said, at the time of publishing, we probably still don’t know much about the final outcome. The key elements of this research note stem from our conversation last week, on our show Think Tank Exchange, with State Street’s Matt Bartolini and Chadwick Financial Advisors’ Michael Chadwick. Although the conversation was focused on the financial impacts of the election, the consideration that politicians should be fiduciaries is a nonpartisan, nonpolitical concept. This is simply the notion that information is necessary to make decisions. Of course, financial fiduciaries do make mistakes from time to time, but that said, the disclosure and archiving rules tend to mitigate the risk of “fake news” and missing email server stories that have become so common place in politics.
What We Know
What are the standards that advisors are held to that we propose should be extended to politicians? The best explanations are provided on the SEC website:
An adviser must look to both its general disclosure obligations as a fiduciary and to the specific disclosure requirements in Form ADV. In particular, in seeking to meet its duty of loyalty as a fiduciary, an adviser must make full and fair disclosure to its clients of all material facts relating to the advisory relationship. An adviser must eliminate or at least expose, through full and fair disclosure, all conflicts of interest that might incline it – consciously or unconsciously – to render advice that is not disinterested.
The SEC provides much more detail, but the key elements are:
- Act in your client’s best interest.
- If you have an unresolved conflict of interest it must be disclosed.
- Keep meticulous records of communications so everything can be verified.
So, to put this in a nonpartisan context, these are requirements for all advisors, whether they work for individuals, institutions, or manage an ETF company. With politicians many of these actions are voluntary, which leads to serious questions about tax returns, parental nepotism and mysterious email servers. According to Statista, 80% of our population disapproves of the way Congress is handling its job. This is not surprising when partisan pundits on CNN, Fox and MSNBC fill the void created by the lack of transparency and become arbiters of the truth. If we want the facts to be obvious, we should require that politicians are held to the same standards as the men and women who advise on our money. After all, politicians do the exact same with our taxes.
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