The Morals of the Market: Implementing Fiduciary Standards in Financial Advising

Abstract

In this essay I provide a sociological characterization of the changes that the Department of Labor’s “Fiduciary Rule” proposes for the financial advising industry. The “Fiduciary Rule” would hold financial advisors to fiduciary standards when providing their clients with advice pertaining to a limited set of financial instruments. As fiduciaries, financial advisors would be legally obligated to act solely in the interest of their client rather treating their client as a contracting party. Fiduciary law also regulates professional relationships, legally reinforcing the professional ethics that obligate professionals to act solely on behalf of their clients. I conceptualize the “Fiduciary Rule” as an attempt to impose professional ethics upon a non-professional occupation by sanctioning financial advisors whose actions do meet fiduciary standards. Professional ethics are binding on professionals only insofar as professional groupings reinforce them collectively. Without such a grouping there is no way to institutionalize a set of professional ethics that would motivate financial advisors to act as fiduciaries in the absence of proximate situational sanctions. The “Fiduciary Rule” may therefore succeed in mitigating fraud and abuse by financial advisors while at the same time failing to transform financial advisors into fiduciaries.