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.
The information provided here is for financial professionals only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
All investments involve risk, including possible loss of principal.
The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Toroso nor any of its affiliates guarantees any rate of return or the return of capital invested. This commentary material is available for informational purposes only and nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security and nothing herein should be construed as such. All investment strategies and investments involve risk of loss, including the possible loss of all amounts invested, and nothing herein should be construed as a guarantee of any specific outcome or profit. While we have gathered the information presented herein from sources that we believe to be reliable, we cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed herein are our opinions and are current only as of the date of distribution, and are subject to change without notice. We disclaim any obligation to provide revised opinions in the event of changed circumstances.
The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Toroso or its affiliates or any of their officers or employees of Toroso accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Toroso. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of and observe such restrictions (if any).