Jared, that Subway sandwich guy, loves when McDonald’s adds meals with 500+ calories and 30+ grams of fat.  The independent natural gas producer loves high oil prices.  Northrop Grumman (manufacturer of stealth bomber) likes an armed conflict with an enemy possessing a strong air defense.  The product manager of diet coke loves a proliferation of non-diet sodas. 

Instances where there is a clear detriment to the common good can leave certain firms with a unique selling proposition easily justified in light of the circumstances. The reason for all of this, in classic marketing parlance, is product differentiation–the process of distinguishing a product or offering from others to make it more attractive to a particular target market.  It’s a hard truth, but the more negative the consequences to the average person, the less effort required for product differentiation.

It’s no wonder that RIAs (Registered Investment Advisors) were seated in front of their computers Monday morning with a an extra spring in their keyboard tap after hearing the news that the Securities and Exchange Commission’s “proposal to raise standards for brokers advising retail investors has run aground.” 

We’ve posted on this topic before.  Independent RIAs are fiduciaries, meaning that they are required to operate only in the “best interest” for their clients.  Brokers—the guys & gals who work at the major banks and brokerage firms—operate under a much less stringent “suitability” requirement.  This allows the brokers to “sell” products to their clients with high fees and commissions. 

The lower standard for brokers clearly hurts the average investor.  It boggles my mind that the standards for brokers aren’t raised immediately.  But, in terms of product differentiation, this only helps the case for all of us independent advisors.  

You can read more about this in the Bloomberg article I link to below.  I’ve also attached a blog post I wrote about this topic a few weeks ago.

Bloomberg: Tougher Fiduciary Standard for Brokers Stalled

Advisors vs. Brokers: exposing the fiduciary standard