I have spent countless hours during the past few weeks on what soldiers in the second world war called ‘chickenshit’ i.e. bureaucratic regulations so silly and so trifling that they don’t even measure up to the level of ‘bullshit’. Nowadays ‘chickenshit’ is everywhere. Virtually every occupation has a government and/or state licensing board and a bureaucracy designed to ‘protect’ the public from unscrupulous practitioners. In California even barbers are considered to be potential Sweeney Todds just itching to dispatch their victims at the press of a button, and only caped regulators are seen as having the power to protect consumers from the depredations of these villains. The website of the California Department of Barbering and Cosmetology states that its ‘mission’ is “to ensure the health and safety of California consumers by promoting ethical standards and by enforcing the laws of the barbering and beauty industry.” That there are laws specifically for barbers is bad enough but do we really need to spend taxpayer’s money on ensuring that barbers behave ethically? Moreover, who is to make sure that the regulators behave ethically? Recently we have seen more than enough evidence of revolving doors between regulators and the people they are meant to regulate, to have much confidence in the ethics of the regulators.
Similar canned mission statements are parroted by virtually every other regulatory agency but what they are really about is limiting competition in favor of large firms, expanding the power and control of the regulatory bureaucracy and creating jobs for the boys. The California Department of Insurance alone employs 1,300 caped crusaders enjoying the rich largesse of state benefits, to protect us from insurance companies (which have probably already bought the regulators) and insurance agents, a desperate bunch if ever there was one.
My own financial planning business is no different from most other businesses, it’s all about old fashioned conversations. Clients, customers, employees, related professionals, prospects, product sales people, custodians, portfolio managers, tech support – we are all holding conversations with each other, conversations which have in the last few years become immeasurably easier because of the internet. User groups, intranets and blogs make it easy for professionals to collaborate together, for clients to talk to advisers and for prospects to talk among themselves. These online conversations will continue because they are real and authentic and they replicate the face to face conversations of markets since time immemorial. These conversations contrast strongly with the dead words, bland platitudes and command and control style of state and federal regulatory agencies, which only serve to restrict and obfuscate communication.
Whatever the intention, the effect of regulators is to limit conversation because they decide what can be said, who can say it and when. For example, state regulators and the Securities and Exchange Commission (SEC) dictate what financial planners can and cannot say, what they can and cannot put on their websites and what they can and cannot put in their marketing materials. As a financial planner I am not allowed to use personal testimonials. Go figure. In communicating with the public there must be disclosure statements for this and disclosure statements for that. Don’t get me wrong. I am not against disclosure, but when was the last time you read an official disclosure document from beginning to end? The essence of trust in something you read comes from being able to discern a basic honesty and a sense of openness in the prose. Read this blog and I hope you find these things. Read my 61 page official disclosure brochure known as Form ADV Uniform Application for Investment Adviser Registration and Report by Exempt Reporting Advisers (good luck with that) and if you stay awake you will take away only the dead feeling of bureaucratic control.
When I want to buy a camera, a car or music center I rarely go to the manufacturer’s site, except perhaps to see some large glossy pictures. Instead, I visit a user group or read some reviews by real customers. Nowadays online retailers routinely let their customers review the products retailers are trying to sell. Bad reviews stand next to good ones, untouched. When I choose a body shop for my car I contact people I know and ask around, or I use Yelp or a similar service to hear the authentic voices of customers. It’s easy to underestimate these conversations but even the largest corporations have been humbled by the conversations of customers that took place online and went viral. The old regulatory model of command and control is dead because the more effective control of an informed consumer is just a hyperlink away. It’s time to roll back the regulatory behemoth. Reduce the size and power of regulators while ensuring strict enforcement of the rule of law (the essence of which is that laws should apply to everyone equally) and you reduce both the incentive and ability of individuals and institutions to capture the regulatory apparatus to obtain special treatment for themselves. As for protection, given an even playing field consumers are quite capable of taking care of themselves in the marketplace as they always have done. Let the conversations roll on.
“Bureaucracy is a giant mechanism operated by pygmies.” Honore de Balzac