It bothers me greatly when people think I am just an investment guy. Not only are investments just a small piece of a big picture but they are actually one of the easiest to figure out. Financial economists know a great deal about how a prudent person should invest. The smartest students of modern portfolio theory have studied the risk, return, diversification, and market factors that determine what a wise portfolio looks like. These scientists can guide us as to which risks are sensible, which gambles worth taking, and which safe ports should be called upon in a storm. They know something else, as well: a great deal of what passes for investment advice involves selling products and services that are essentially worthless. A majority of “investment advisors” are really just people being paid to roll the dice with your money. Economists have proven this time and again with experiments showing that, once random chance is removed, nobody can consistently beat the market averages. To employ such an “advisor” is to pay someone to do what scientists know cannot be done. As you can imagine, it hurts my pride when I am confused with such folks.

To add insult to injury, some parts of the financial services industry lack the ethical standards and duties with which I care to be associated. I really don’t want to be included in an industry that takes advantage of complex subjects like the tax code, finance, market economics, and law to sell people all manner of products that are not in their best interest. My stomach hurts when I see people in my office who have been abused, often in ways they still don’t realize, by brokers and salesmen and “advisors.” My heart aches when, for example, I meet seniors whose retirement funds have been put in variable annuity products that will cost them a significant chunk of their remaining nest egg. My blood boils to watch a filthy rich industry fight like heck to stop government from imposing responsibility or reining in its excesses. All in all, it is a club I would prefer not to be a member of.

So how can I explain what I do? How can I show, without being longwinded, that our work is totally different from the troubling industry that I have described? Many years have been spent pondering this. My answers can be found on our website. I have developed a definition of what it means to be a true professional and have dedicated my practice and my firm to living up to that definition. I am a lawyer, both by training and by oath, and I have a duty to fully honor the Lawyer’s Code of Professional Responsibility. I hold advanced degrees in taxation, education, and law. I continue to pursue new knowledge and better understanding; my clients deserve to work with someone who knows everything possible about the subjects on which their well-being depends. Furthermore, I am deeply committed to maintaining a network of learned colleagues to whom I can turn when my clients need an answer that I do not know. I have built a firm on the pillars of professional ethics, implementation of scientific knowledge, and fully serving the actual need of the clients who depend on us. In this way, I hope to demonstrate that my colleagues and I do this work in the proud tradition of professional safeguarding of our clients’ interests and well-being. I know that sets our work apart from the typical.

In a compliance session at the recent NAPFA National Conference in Washington, Steve Blum, a business ethics professor at the Wharton School, talked about the difference between strict fiduciary standards, where the advisor works purely for the benefit of the client, and suitability standards, where the employee of the brokerage firm works on behalf of the company.

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It’s been months since most investors began seeing big losses on their financial statements. If they haven’t yet hired a financial advisor, many are thinking about doing so now. Others, who already have financial advisors, have either called to discuss their options or possibly even switched to a new advisor in hopes of turning around their situations. Investors want to know if they should sit tight and ride out the crisis or change their investment strategies to try and mitigate their losses. However, an even greater question looms: Whom can they trust to give them the best possible advice?

Read Steve’s Full Article on Forbes.com

The challenge of finding trustworthy guidance is present in every corner of our lives. It is especially difficult, though, in dealing with our money. The world of finance is complicated and intimidating. Furthermore, these decisions involve very high stakes: happiness, comfort, success, health and retirement all hang in the balance. A big error can have grave consequences for the rest of our lives and those of our children. In light of how much is at risk, we want those who guide us in our financial lives to be people who are highly knowledgeable, honest and trustworthy.

The need for expert assistance that combines substantive knowledge and trustworthy care is not new. One of the traditional answers to this problem is to seek out a professional. When our health or our rights are in jeopardy, we turn to a doctor or a lawyer. In the same way, we might naturally look for professional help in safeguarding our financial well-being. The difficulty in finding such help, however, lies at the heart of one of our biggest societal problems. We need something beyond mere technical capability. The word “professional” must not refer just to skill or subject matter expertise. The duties of what I call “true professionals” include not only using technical proficiency in the service of clients but, also, honoring the complex trusts placed in them by those they serve. Using the traditional professions as a model, but expanding the notion to all who would seek to be viewed as professionals, I have long advocated that

“A true professional uses his or her ability and power solely to advance the best and truest interests of the client. When the professional’s interests diverge from those of the client, the professional always follows only the client’s interests.”

Such a “true professional” brings skill, knowledge, training, and experience to bear on the client’s problems. To these are added the notion that service, care and safeguarding are an intrinsic part of professional work.

Most of us know, however, that it is extremely difficult to find such a true professional to guide us in our financial lives. It is true that there are “financial advisors” (bearing a hundred different titles) on almost every street corner. They are anxious to do business with us (sometimes even aggressive), simple to locate, and eager to please. Unfortunately, the typical “financial advisor” does not come close to meeting the standards of a true professional.

Much of the difficulty can be traced to the history and practices of the “financial services industry.” Those businesses, along with the people who were trained and work in them, have long operated in what can be called a “sales based culture.” Not only do they fall short of professionalism but, sadly, they have failed to strive for the higher ideals set out by the traditional professions. The industry has consistently put profits above stewardship, products before advice, and sales ahead of transparency. In short, the financial services industry turns out workers who are far more like salesmen than true professionals. As most consumers know, it is unwise to place much trust in anyone from a sales culture for, to quote a common expression, “they are surely trying to sell you something…”

There is nothing inherently wrong with a sales culture. Most of us have plenty of experience bargaining with salesmen about the price of a car or length of a warranty. These relationships are known in the law as “arms length” and it is understood that each party is looking out for their own interests. Everyone involved knows the Latin phrase caveat emptor -“let the buyer beware”- and the salesman’s motivations are clear. Arms length transactions are considered fair when the parties are pretty much equal in bargaining power and neither party has a distinct advantage over the other.

Significant problems arise, though, when one party to the transaction knows a great deal more about the subject area than the other. Most financial advisors have command of a great many industry practices and norms that are far beyond the knowledge of even very smart “regular people.” They also have experience and training in various routines, techniques and tricks-of-the-trade that give them an enormous advantage over their clients. An economist would describe this as an asymmetry of information between the advisor and the client.

The trouble increases if the client believes that the financial advisor is somehow “looking out for” or has a special duty to the client. Instead of keeping the advisor at “arms length” and being cautious about the information asymmetry, the client may place great trust in the advisor and assume that all industry knowledge will be used solely in the client’s behalf. Few among us would mistakenly believe that the car salesman was watching out for our interests above his own – we know better than that. The financial services industry, however, has failed to confront these problems and has contributed to a lack of clarity concerning the role and duties of its sales force. As a result, the person receiving the advice is badly disadvantaged and very vulnerable to being manipulated.

To make matters worse, there is a natural conflict of interest between a “financial advisor” and client. The financial services industry was built on a system of paying commissions and that is still the primary way most advisors make their money. The result is a terrible conflict between the “financial advisor” and the client: the former wants to make as much money as possible while the latter desires to get the wisest solution. A number of troubling consequences flow from this. Some advisors urge clients to buy those products which offer the highest commissions. Advisors may recommend buying a product when none is needed at all, or buying more than is needed. Thus, for example, a stock broker may suggest a mutual fund with a high sales charge despite research that proves funds with high charges under-perform lower cost funds. An insurance salesman may steer a client toward a two million dollar “whole life” policy when a million dollars of term insurance would cover the need. And, of course, the very word “product” points to another part of the problem: clients aren’t looking for a product at all. Rather, they seek real guidance on how best to meet their underlying interests. Someone selling some commoditized or one-size-fits-all answer is very unlikely to give clients what they really need.

While the financial services industry has a long history of commission based sales, some “financial advisors” do not currently work that way. So called “fee only advisors” are compensated based on some agreed upon rate and, thus, may avoid some of the conflict problems that commissions generate. This is a great step in the right direction, but it by no means eliminates the problems of conflict-of-interest. Indeed, such conflicts seem to show up in every corner of the practice of working with other people’s money. Consider, for example, what happens when the client asks the “fee only advisor” about the wisdom of paying off a mortgage early using funds that would otherwise remain in the investment account.

Many people believe there are laws and regulations in place to deal with the problems of conflicts of interest and asymmetric information between “financial advisors” and their clients. This belief, unfortunately, is for the most part mistaken. Those who hold themselves out as “financial advisors” all have some legal duties to their clients. It is surprising to many, though, just how low the level of those duties can be. People often assume that all “financial advisors” have a fiduciary duty to their clients. Under present law, however, most of them are governed only by a “suitability standard” – a surprisingly low level of responsibility to clients.

The differences between “fiduciary duty” and the “suitability standard” can quickly devolve into a bunch of lawyer-speak but here is the essence. Fiduciaries have a very high level of duty. They owe a duty of care and a duty of loyalty and must not put their personal interests before this duty. All of the fiduciary’s actions are performed for the advantage of the client. Such a duty gives rise to a relationship of trust and confidence. Many people understand this as the level of care and responsibility they expect from their doctor and their lawyer.

The “suitability standard,” on the other hand, requires only that investments or products sold are “suitable” for the client. It does not require, however, any effort to give guidance as to which products are better, more efficient, riskier or wiser. Such a standard, which governs stockbrokers and “broker dealer representatives” under current law, might be understood as similar to what we could expect from a used car salesman.

The financial services industry has lobbied long and hard to resist the introduction of a fiduciary duty to its broker dealer representatives. In a time of growing public pressure for greater financial regulation of all types, it is mounting a campaign in Washington to resist any attempt to extend fiduciary duty to those who sell its many complex and confusing financial products. Even though most fair minded individuals would expect fiduciary duty to be the standard for those who work with people and their investments, the industry resists extension of that level of duty to all those who sell its products. In doing so, it puts another nail in the coffin of any plausible argument that those financial advisors working under the “suitability standard” can reasonably be called professionals.

The combination of conflicting interests, asymmetric information, and modest legal duties to clients creates a situation in which it is unwise to trust most “financial advisors.” They may be decent people with good intentions and a warm heart but, in reality, they are not likely to put their client’s interests ahead of their own. A prudent client would not even expect such unselfishness – and experience shows us that extreme caution is called for in light of typical practices. The incentives are stacked against a “financial advisor” being highly trustworthy and, since they are human, most of them act on their own interests. To make matters worse, there is so much money at stake, and in such a complicated set of arrangements, that the corrosive affects of greed are ever present. Caveat emptor.

In light of this challenging situation, who can we trust to guide us through our financial life? The key to the answer lies in the concept of a “true professional.” Wisdom calls for seeking out someone with technical expertise and extraordinary training but, also, with a strong sense of client care and safeguarding. Search for an experienced practitioner who acknowledges the problems explained here and has taken concrete actions to address them. In particular, find someone whose practice is completely transparent and who struggles to eliminate conflicts of interest. It would not hurt to find a practitioner who has been trained and socialized in one of the “traditional professions” as to the primacy of client interests. Identify somebody who has a fiduciary duty at law, and understands it fully, but recognizes that alone is not enough. The “financial advisor” worthy of full trust will be one who in all ways has sought to act as a “true professional” over a significant period of time.

Why is it so hard to find someone worthy of our trust? The answer can be found in a couple of truths known to economists. First, people have a strong tendency to respond to their own interests. Even those at the very highest levels of governmental, social or commercial life usually take actions they believe will further their own goals and objectives. Indeed, one way of looking at human interactions is to start with the assumption that a person’s sole motivation is to advance his own interests. Such a rational actor will only further the well-being of others if he believes that to do so also somehow maximizes his own benefit. To put it simply, most “advisors” have a serious conflict-of-interest: what is best for them may not be the greatest thing for their client.

The second truth economists have identified is that people who are highly trained in a special area know a lot more about it than we do. Most advisors have command of a great many practices, norms and tricks-of-the-trade that are far beyond the knowledge of even very smart “regular people.” This is particularly true in fields where special jargon, routines, and techniques make “common sense” an almost irrelevant attribute. In the language of economics, there is an asymmetry of information between the advisor and the client. As a result, the person receiving the advice is badly disadvantaged and very vulnerable to being manipulated.

The combination of conflicting interests and asymmetric information creates a situation in which it is unwise to trust most advisors. They may be decent people with good intentions and a warm heart but, in reality, they are not likely to put their client’s interests ahead of their own. A prudent client would not even expect that level of unselfishness – and experience shows us that extreme caution is called for in light of typical practices. Caveat emptor – let the buyer beware. The incentives are stacked against an advisor being highly trustworthy and, since advisors are human, most of them act on their own interests. This creates a huge difficulty for the client in need of the best possible advice.

For historical and legal reasons, this dilemma is particularly difficult when dealing with our economic lives. The problems of conflicting interests and asymmetric information, however, are not unique to financial advice. Indeed, they arise whenever we pay someone to give us highly skilled guidance about subjects on which they have much greater knowledge. What is to be done about this predicament? How can we get the guidance, care, and help we need in an area outside our own expertise without being preyed upon by someone who has the requisite skills?

It turns out that society, having long struggled with this problem, has come up with a pretty good answer. People have always needed help, guidance and care in dealing with their greatest treasures. In particular, our health, wealth, rights, and relationship with the Almighty are areas of great vulnerability. We need assistance with these things but are terribly vulnerable to being abused by those who would help us. The societal answer is that in these areas our care is entrusted to professionals.

The traditional professions of medicine, law, and the clergy have unique histories and cultures that developed over very long periods of time. What they have in common, however, is an understanding that service, care and safeguarding are an intrinsic part of professional work. With this shared knowledge, each of the traditional professions trains and socializes its members (novices and elders alike) in these core attributes that are simultaneously skills and values. To be a member of one of these professions requires mastery of a body of knowledge, some sort of certification or passing of a test or assessment, and an apprenticeship of one kind or another. It is here proposed, however, that they ask for much more than that. The traditional professions seek from their practitioners, as well as skill, adherence to a code that has at its core an understanding that the professional must not violate the complex trusts placed in them by those they serve. It is this focus on faithfulness that is the essence of what separates professionals from others possessing skill and knowledge.

To be a professional, historically, was to be a member of one of these traditional professions. To gain such a place was not easy; it required long hard work, intense study, the passing of various tests. It also required undergoing a powerful socialization: the professions went to great lengths to get their members to think and act as prescribed. Included in this socialization was some variation of this idea of keeping trust. Furthermore, once a person had attained this status, the profession itself was always looking over her shoulder and seeking to encourage, maintain, and enforce the agreed upon codes and expectations.

My purpose here is not to idealize the historical professions. It would be naïve in the extreme to suggest that they have always been effective in training and socializing their members to serve and safeguard with the highest levels of faithfulness. The professional bodies, as well, often have been as interested in self-protection and promotion as in loftier goals. Sometimes they function more like guilds than as protectors of the highest societal needs. The point, though, is that when they have failed to uphold their self articulated highest ideals, they have badly fallen short of their avowed professionalism. The professions, and their members, are far from perfect. In their unattained perfect form, however, they are the answer to the great societal problem of who will fairly and faithfully help people protect that which is most precious and important.

It is neither practical nor reasonable, though, to suggest that an answer lies in always getting a highly ethical doctor, lawyer, or member of the clergy to help us with all our problems. We are a society served by a great many groups, vocations, and practitioners. How can we pull together the highest levels of knowledge, skill, training, certification and apprenticeship and effectively blend them with the concepts of keeper of trusts and safeguarding agent who will never violate or betray the precious things placed in their care?

The answer proposed here is to reclaim the notion of “professional” and restore to it a precise meaning and high purpose. Our modern society has allowed it to evolve into a word for anyone who has a strong set of skills. This has led to confusion and a loss of usefulness. We have left out the most important part.

After many years of thought and study, I have concluded that the most useful definition of what makes someone a professional is this:

“A true professional uses his or her ability and power solely to advance the best and truest interests of the client. When the professional’s interests diverge from those of the client, the professional always follows only the client’s interests.”

By decoupling “professionalism” from particular groups and, instead, defining it by its special attributes, we can broaden our understanding of who may legitimately be viewed as a true professional. Such a definition, however, stays faithful to the teaching of the traditional professions found in their codes, training, and socialization. The professional uses her skills, knowledge, experience, and training solely in the service of the client. Indeed, whatever power of any kind she possesses is to be brought to the exclusive task of advancing the client’s interests. Although the professional makes a very good and fair living, she is never permitted, under any circumstances, to enrich herself at the expense of that client.

This notion of what makes for a true professional, with its attendant strengthening of expectations and duties, can guide practitioners and providers to a higher level of service and responsibility. By restoring to the concept of professionalism the level of responsibility and trustworthiness prescribed by the “traditional professions,” a new set of obligations will be assumed by those who would hold themselves out as professionals. This will lead to greater openness, conscientiousness, and reliability on the part of those who wish to be viewed in a professional light. Along with this will grow up a commercial imperative; few people will seek guidance from less than a true professional. Thus, the choice to embrace this new understanding of professionalism simultaneously helps the practitioner and the client she serves.

There is a further benefit to such a societal reclaiming of professionalism. This notion of the true professional will greatly assist in the problem discussed at the start of this discussion: the dilemma of who to trust in a complicated world. Practitioners of all kinds who adhere to this definition of true professionalism take a giant step toward being worthy of the trust that is placed in them. They are, in a sense, acknowledging the problems of conflict-of-interest and information asymmetry in their work and pledging to resolve all doubts in these areas in favor of their clients. With this, the great communal need for advice that is based in knowledge and training but, also, in faithfulness and safeguarding can be met on a wide scale. Thus, by demanding that those who seek to do professional work act as true professionals, and hold themselves to the highest standards of trustworthiness, society can make it easier for everyone to figure out who is worthy of their trust.