On Disclosure and Conflicts of Interest

In my life as a trial lawyer, I have found myself in a recurrent situation, in which a judge or an arbitrator eventually looks at me in an argument over discovery and asks if I really want the information I am after, as it could run against me. I always answer the same way, to the effect that I am comfortable with facts, believe that more information is more likely to lead to the just result in the case, that I will trust the facts to show us which way to go, and that I am more than willing to let the facts come out in the open and drive the case. Now, the truth is that, before ever seeking the discovery that is at issue, I will have long since thought through the subject and become convinced that the evidence in question, once brought out, is far more likely to help my case than to harm it; the reality, from a tactical perspective is that, otherwise, I would not have pressed the point in the first place, with me going so far as to ask a court or arbitration panel to order production of the witness, or documents, or whatever else is in question. That said though, my response - to the effect that I favor the facts coming to light - is a true sentiment. Facts are stubborn things, in the classic formulation, and they decide cases; I am more than happy to have them see the light of day. Heck, I would certainly like to know of them while I can do something about them, even if they are bad for my case, than have them just show up for the first time out of some witness’ mouth on the stand in the middle of a trial.

I thought of this when I read this investment manager’s discussion of the Department of Labor’s expansion of the term fiduciary, which I discussed in my last post, and of the Department’s various initiatives related to fee disclosure, in particular his discussion of lobbying against those actions. Like facts in a lawsuit, the facts of revenue sharing, fees, and the like belong in the open, and can do nothing at the end of the day but improve outcomes for participants, plan sponsors, fiduciaries and the better advisors. What’s wrong with a little sunshine, a little transparency, and a lot of disclosure in this context? Frankly speaking, probably nothing. Participants will eventually end up with better outcomes, while plan sponsors and fiduciaries will have the information needed to best do their jobs, which will - if they use the information right - make them far less likely to get sued or, if sued, be held liable for fiduciary breaches. Meanwhile, we all know that advisors get paid fees, as of course they should; the only change is that everyone involved in the decision making will know who is getting paid what and for what exact services. Under that - possibly excessively rosy - view of the world, the end result should just be that the better advisors, who are providing better products and services at better prices, will get more of the business. What’s wrong with that, from a forest eye view?