It seems all stakeholders want to go on record in favour of the principle of disclosure. Of course, many of those same interests will often obstruct meaningful progress on the grounds that the disclosure reforms being suggested are too cumbersome. Full, true and plain disclosure is hard to agree on in tangible terms, it seems. That’s the kind of disclosure that helps reasonable people make informed decisions based on their own self-interest with all material facts laid out in terms any sensible person can understand.
To now, I’ve written exclusively of the two extremes- STANDUP for full and necessary disclosure and SPANDEX for deliberate non-disclosure. Some people have suggested that this is too much of a cut-and-dried depiction. They argue disclosure can be nuanced and often depends on who’s doing the talking – and who they’re talking to. One obvious example is that presentations given to internal employees need not carry the same disclosures and disclaimers as would be required when dealing with ten or more members of the public.
For years, my impression has been that some advisors deliberately fail to be forthcoming regarding the importance of product cost when making product recommendations to clients. SPANDEX advisors take an ‘Ask me no questions and I’ll tell you no lies’ approach to disclosure.
These days, some compliance representatives have elected to make disclosure a circumstantial consideration. In other words, if an advisor tries to talk in a balanced manner about passive and active products and the cost implications of both, that advisor may be required to offer a disclaimer that expressly states neither approach is unequivocally superior. Meanwhile, advisors that recommend only one approach but assiduously avoid talking about the subject altogether, are not required to offer anything similar. Sort of an ‘avoid contentious issues to avoid truth and balance’ approach.
This is a step backward. I believe that effectively forcing a disclaimer upon those advisors who try to be balanced in the first place while simultaneously allowing those who make no attempt to provide balance off the hook is like having compliance people effectively aid and abet the deliberate avoidance of the meaningful disclosure that everyone purports to support.
This circumstantial approach to disclosure leads to an egregiously uneven playing field within the industry. The acronym that one might use is SCREWUP- Some Circumstances Require Equivocation, Waffling, Undermining Professionalism. When certain advisors allow consumers to cling to a perception or belief without actively pointing out that it is not necessarily or unequivocally correct, then we have a problem. Allowing these potentially wrong impressions to go uncorrected is, to my mind, tantamount to actively encouraging misinformation.
Stated somewhat differently, it seems compliance departments are being vigilant in their policing of what may be nothing more than well-intentioned errors of commission (i.e. advisors who try to make good disclosure, but use imperfect wording), while simultaneously being totally unconcerned about deliberate errors of omission (i.e. advisors who are deliberately silent about important considerations like the effect of cost on performance). To my mind, disclosure is far too important to be dealt with so wantonly. Good disclosure, if that is genuinely what people want, needs to be proactive and universal- whether advisors want to do it or not.
Read: De Goey: Selective disclosure