DOL Fiduciary Failure #928-Pizza Isn't Really a Vegetable

February 17, 2017

I suggest making all fast food ‘organic’ is a worthy goal of government (and, "who could be against making food safe?").

 

A recent blog by an intellectual in the financial services space makes the argument that the government must make stockbrokers into fiduciaries by law or else they will never become a fiduciary (it doesn't say it, but since so many do, I'll add the unsaid argument is, "who could be against making retirement advice better?").

 

I’d prefer a law that makes all food safer by making it organic. Here is my reasoning:

  • It won’t harm me as a producer of organic services.

  • I’m helping people who I aren’t acting in their own interest and eating the way I think they should.

  • While it may cost more to eat organic, consumers would benefit in ways I understand, but they don’t.

  • It is my believe that extra regulation will decrease costs, and I’ll point to a couple studies that I think show this.

  • The regulation will put everyone on an equal playing field.

  • The current way of growing food, and the current food science, is settled – producers will no longer be able to offer ‘new and untested’ products and services.

 

The problems with the above are many, but the question of ‘who would be against’ this covers up the fact that force is being used by a non-impartial arbiter. I’ll go bullet point for bullet point to reply to the arguments:

  • Proponents – working as a fiduciary / organic food producers – will be harmed as the definition continues to be watered down by adding mutual fund providers, robo-advisors, and salespersons to the public confusion. (I’m already eating mostly organic. I addressed the naively part here in Failure #).

  • Proponents who assume individuals are not acting in their own interest by working with a broker are overestimating their ability to choose what is right for others, and vastly underestimating the costs these people are paying

  • Most proponents have high minimums and do not serve these people anyway, and many advice clients in only one way – hourly, retainer, AUM – and can not serve every client type, despite their belief they should. Clients choose the advisor and how they pay (and, unlike food, they don’t have to continue to pay for advice at all).  

  • Regulation increases real costs, removes real providers from competition, and creates the scenario we see in all overregulated business structures – there will be very low-cost providers who are not real fiduciaries, and very high-cost providers that can cover the costs of regulation and provide additional services for those willing to pay. There will be very few options for regular people. We see this with Dodd-Frank, the ACA, minimum wage, and every other regulation – the number of producers decreases, holding prices artificially high for consumers.

  • Everyone will not be on an equal playing field. You provide incentive to have the opposite when you introduce regulation – you have an arbiter now who chooses the rules that apply across the board, even to those who may not . Making fast food provide organic services would not stop grocery stores from continuing to offer lower quality food, which people may use as a substitute. In financial advice, we have many substitutes – newsletters, trading software programs, ‘estate planning kits’, direct to consumer product sales, etc. Equity Indexed Annuity providers were being given an exemption, as there are and will be other exemptions.

  • The basis for many rules will be ‘what is right’ which the government decides, and this becomes frozen in time as the ‘right’ service at the ‘right’ price. In fact, financial products have gone through a massive increase in quality, strategy, and decrease in cost over the last decade. I’ve heard people suggest fiduciaries can not recommend ‘new and untested’ products. What a terrible idea! We would not have ETFs, advances in index funds, other investment products, advice technology, etc., if today’s ‘approved’ products are chosen by intellectuals and bureaucrats!

 

In food, the government has:

  • Has classified pizza as a vegetable, defining words to harm others. They have butchered the use of the word ‘organic’ and allowed a nonsense term ‘natural’ to be marketed which has no known meaning to food producers (how in the world can a mutual fund firm or a salesperson / stockbroker actually be a ‘true fiduciary’?). 

  • Handed out exemptions to some sources of food from costly regulations, while imposing these costs on others.

  • Has removed small, competitive, entrepreneurial producers. I know an entrepreneur who wanted to provide organic eggs to the world. She decided she could not afford the costs to be an ‘organic’ farmer (the next step in ‘fiduciary’ is that people will pay for their own specialized ‘fiduciary’ markets at very high costs; this will remove small competitors… I think most larger ‘fiduciary’ firms know this and it is the real reason for their support).

  • Jailed and taken the property of those that produce organic food, sometimes for simply not putting a label on it. In fact, in this podcast that crossed my playlist today there is an Amish organic lotion producer facing 48 years in prison (4-5x what most murders serve) for not replying to a bureaucrat (can you imagine the conversations between prisoners - "What are you in for?", "Murder", "Rape", "Selling organic lotions."). Supporters should really take a little more care in suggesting government force, penalties, and threats are the answer to their perceived market failures (the market doesn't fail, it only responds) and their hatred of commissions. 

 

All of the above also ignores the Revolving Door / Regulatory Capture aspects of government which make the ‘arbiter’ of what is ‘fiduciary’ very conflicted (as in, perhaps the propose exemptions for the worst providers like Equity Indexed Annuities).

 

The goal of true fiduciaries is not to make everyone a fiduciary. My goal in producing and eating organic food isn't to force other food producers and eaters to eat like me. 

 

If I really cared about providing more fiduciary advice in financial services, and I wanted consumers to receive a real fiduciary service rather than a conflicted one, I can only make the case why they should. 

 

(Pizza isn't a vegetable, and I know that better than anyone... I would be a very healthy person if it were! Though, perhaps government school students coming up through the system today will know it as one, just as those who are about to receive watered down 'fiduciary' advice will know that as the advice of a 'true fiduciary'.)

 

(We also need to look at the incentives of the people who are making these arguments, as they are many. Some own associations that are looking for publicity by virtue-signaling they are for government forcing people to eat organic; some are academics who look for prestige and high-priced consulting work; some are government bureaucrats who may have a problem with the revolving door and future payments for speaking, etc.)

 

 

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