Every red-blooded American loves the game of poker. It involves all the elements of the rugged individuals who built this great country: It requires self-confidence, bravado and a willingness to put up a stake, all in the name of achieving a very measurable degree of success.
But the game can also teach us an important lesson about the fiduciary's duty to disclose. Remember, while anyone is free to disclose, only an advisor operating under the fiduciary standard is required to disclose.
Until some enterprising entrepreneur comes up with a better solution (see "How CarFax Can Help 401(k) Plan Sponsors and Investors,"), plan sponsors and investors have no other alternative than to rely on what their advisor tells them.
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Which got me to thinking about poker, specifically a variation of the game known by several names including "Indian Poker" and "Blind Man's Bluff." Unlike most versions of poker, where the only you know all the cards you hold, in Indian Poker, all the players know your hand – except you.
For example, in one variant of this game, you hold your card on your forehead, revealing its value to everyone else while keeping it hidden from you. You then must wager, without knowing your card, but knowing all the other player's cards.
Think about this in terms of disclosure. In the game of Indian Poker, your heart (or spade or diamond or club) is an open book. You hide nothing. You must then "transact" with all the other participants knowing they know your hand.
This is the ultimate form of disclosure. Of more interest, it also represents complete unbiased objectivity. Since you don't know the true value of your card, your bets reflect only the reactions of those around you.
Imagine, if you're a plan sponsor or investor, every advisor comes in with all material disclosures in plain sight smack dab in the middle of their foreheads. You'd trust their "bids" a lot more, right?
Now imagine you're the advisor, and you enter the conference room of a client knowing they know every possible conflict-of-interest you might have – even if you aren't aware of some of those conflicts yourself. What bid would you open with?
How comfortable would you be going headlong into a negotiation process? If you're like most people, you'd tread very carefully, not knowing for sure if you're giving away the store or bidding yourself out of a job.
From the advisor's perspective, this is pretty scary stuff.
But that's precisely where the client sits right now. The client doesn't know what hand he's holding – he's not an expert on investment theory, investment products or investment research. The client doesn't know if he's about to sign his whole life away or if he's flying solo into a storm.
That's where the fiduciary standard comes in. It eases the client's unfamiliarity by leading with all material disclosures up front, in plain sight and in easy-to-understand language.
Perhaps the regulators of such things might want to play a few games of poker. Who knows, they might then discover the practical difference between something hidden up one's sleeve vs. something worn on one's forehead.
Only then can investors be guaranteed a real deal instead of a raw deal.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
