I wanted to come up with a good analogy of why a fiduciary duty is such an important regulation to have in place in our society.
And it made me think of mattresses.
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Lie down and let’s talk
A few years back, I was shopping around for a mattress.
I feel like mattress shopping is inherently hopeless. Nothing feels particularly comfortable or uncomfortable during the first few minutes of lying down. (Unless it’s truly crummy.) And plus, you’re in your street clothes, which is not how you go to sleep usually. And also, I don’t know about you, but most mattress stores have bare mattresses out, which is nice of them, but isn’t quite the way I’ve ever slept, not even when I was in college.
And you can’t take a mattress home and take it for a test run (okay, with one company you can), and if you did, the hassle would be pretty prohibitive, especially if you wanted to try multiple mattresses.
You and I don’t know much about mattresses. You read about coils and coil density (and memory foam). You read about lumbar support, variable firmness, and the pros and cons of box springs. You read about warranties, but you honestly have no idea how long a mattress will really last before it starts to wear out on you.
You’re operating at an information deficit. In short, mattresses are not unlike financial products.
Scratching our collective heads
Think about it. You read the sales pitch, you try to learn the lingo, but at the end of the day, you don’t really know the practical upshot of what’s “inside”. There’s a certain amount of faith in the salesperson, the sales materials, and the future. Sometimes, you just gotta believe.
If I were shopping for a financial advisor or an investment product, it would be much the same thing. And I would argue that I know more than most about investing and wealth management, but even I have plenty to learn. And this is stuff I read about in my spare time. For fun.
The average person doesn’t do that, about either financial products or mattresses.
Everyone needs a mattress
Here’s another way that financial products are like mattresses: you can’t opt out.
The writer Chuck Klosterman talked about not sleeping in a bed when he was younger; he created a “sleeping machine” made of pillows and blankets.
And, well, I’ve slept on a floor before and it wasn’t fun. You need a mattress.
Similarly, I don’t believe that you can seriously opt-out of the financial services industry. Really. You need to get involved, and immediately. Even if it’s dumping a little bit of money into a Roth IRA (which is easy to do), opting into your company’s 401(k) plan, etc., this is something that needs your attention right now.
What’s your alternative? Living off the grid, being a subsistence farmer? How is that going to help you when you’re 70 and are unable to tend the fields anymore?
You must be an investing expert. You need to be prepared. Social Security won’t take care of you. You need to build a financial…cushion.
Why financial salespeople need to be held to a different standard
Does a mattress salesperson have an obligation to put your best interests first?
As far as I can tell, the answer is no. There is no regulation that mandates that mattress salespeople have a “somnus-iary” (sorry) duty to act in the best interest of their clients.
The best salespeople ones can create a “win-win” situation as part of the sale. The client benefits from the purchase, and the salesperson benefits as part of the sale. But a less-than-savory mattress salesperson could sell you something today that would much later turn out to be garbage. And by the time you’ve found this out, they’ve already gotten their commission, and have washed their hands of the sale.
So there’s no mandated customer-first policy with mattresses. Actually, in most sales environments, there isn’t a mandated customer-first policy.
So one might reasonably argue that we don’t need one in the financial industry either. Why single out one specific market?
Because this one market has the power to trash your life if you don’t navigate it effectively.
Remember: there is no opt-out. If you get to your later years and are unable to work and have not enough money, you are going to be hindered in a serious way.
And if there are no laws in place, you are forced to negotiate an environment where you are already working with an information deficit, filled with people who are not working in your best interest.
With a mattress, you’re only out $1,000 for the mattress and a lot of wasted time.
How to fight for yourself
There is only one way out: become as educated as possible. Do not sign up for anything unless you truly understand it. Don’t let the salespeople control your destiny. If they won’t put your interests first, you better do it yourself. And I can help you.
Because we all can’t take this lying down.
But enough about me. Do you feel like financial providers have a duty to put your best interests first?
