Fiduciary is not a four-letter word: Citi wakes up; Insurers sleep.

The seeds are being sown for the financial services industry's next great crisis of consumer confidence.

The seeds are being sown for the next great crisis of consumer confidence in the insurance and financial services industry.

The Obama administration has proposed raising the bar for investment brokers, holding them to a fiduciary standard of behavior and better aligning their interests with those of their customers.  What a novel idea – financial institutions looking out for the best interests of consumers. 

Many in the industry have lined up against the proposal.  Yesterday, an insurance industry trade association told Congress that requiring insurance agents to act solely in the interest of their customers when selling securities products would be “counter to serving the investing public’s needs.”

 

But there are some glimmers of hope.  Also yesterday, Citibank announced that its brokerage business will move to a fee-only based model (instead of a commission-based one).  That means Citibank’s brokers will no longer have any monetary incentive to sell customers products that might not be ideal for their particular financial needs.  What a concept!

 

When it comes to securing their financial future and that of their family, consumers aren’t just looking for investment opportunities or insurance protection. They’re looking for objective advice they can really trust. The tragedy is, too often that’s not what they’re getting and they don’t realize it.  And when they wise up to this reality, they’re not going to be happy.

 

To learn more about how the fiduciary standard (or lack of it) will influence consumer perceptions about the financial services industry, read my recent commentary on Dow Jones Marketwatch.