By Jason Zweig | Dec. 1, 2017 11:39 a.m. ET
Image credit: Sancta Fides (Faith), from a Book of Hours, France, ca. 1475, The Morgan Library
Most people measure patience in hours, weeks or months. Tamar Frankel measures it in decades.
Ms. Frankel, a law professor at Boston University, is the intellectual godmother of the fiduciary rule, a regulation from the U.S. Department of Labor requiring anyone being paid to provide investment advice on a retirement account to act in the best interest of the client. At the age of 92, Ms. Frankel still commutes to work five days a week, teaches two courses—and is unfazed that the Labor Department announced on Nov. 27 that it would delay implementing key parts of the fiduciary rule until July 2019.
After all, Ms. Frankel has been advocating that brokers should put their clients first for more than 40 years. What’s another 18 months?
Born in what was then Palestine in 1925, Ms. Frankel joined the Haganah, the paramilitary movement for Israeli independence, at age 14. Her father was the first president of Israel’s bar association, and she apprenticed in his practice. In 1949, she became the first general counsel of the Israeli Air Force. Two years later, when she was 26, her father died, and she took over his law practice.
In 1963, Ms. Frankel came to study at Harvard Law School. She wrote her doctoral dissertation on variable annuities, those mashups of mutual funds and insurance.
“That was perfect, because I knew very little about mutual funds and very little about insurance,” she says. “There are two ways you can react to not knowing: one is to feel afraid of your ignorance, the other is to be consumed by the desire to understand. I felt almost drunk with how much I could learn.”
In 1968, as she was still studying to complete her dissertation, Ms. Frankel joined Boston University. The field was so male-dominated that, when she arrived as the law school’s first female professor, BU relegated her office to the basement of the library.
“I didn’t have to put the books back on the shelf!” she laughs. “The craving for being part of the group, being accepted, that wasn’t my priority.”
Brooksley Born, chair of the Commodity Futures Trading Commission from 1996 to 1999, has been a friend of Ms. Frankel’s since the 1960s. Ms. Frankel has always brought “an outsider’s perspective,” Ms. Born says. “She demonstrated a lot of courage and persistence in her analysis of the need for the fiduciary standard.”
Ms. Frankel learned early about the importance of trust.
She recalls her family saying that, at age 2, she opened their apartment door and disappeared. Panicking, Ms. Frankel’s mother grabbed the manager of the bank on the ground floor of their apartment building. He promptly closed the bank and led his employees on a search through the streets for the missing child. Shortly thereafter, the neighborhood milkman came down the sidewalk, holding young Ms. Frankel by the hand.
“When you live in an environment that poses danger, then you disregard your differences and focus on safety,” she says. “You have to trust and rely on others, and therefore you have to be trustworthy and reliable.” The law, she says, should recognize the importance of trust to the functioning of a civil society—and financial markets.
When Ms. Frankel began researching fiduciary law in earnest in the 1970s, she dwelled on that idea: A fiduciary is someone trusted by others because he or she has superior knowledge and expertise. People hire brokers because the brokers know what they’re doing and the clients don’t. That gives fiduciaries power and responsibility over those who trust them.
The unconditional trust that clients place in a fiduciary creates a paradox, argues Ms. Frankel. “When you get power, you lose the power you might otherwise have,” she says.
A fiduciary adviser can’t abuse the relationship of trust by collecting unreasonable compensation or harboring avoidable conflicts of interest. The relationship is meant to satisfy only the needs of the client.
Much of the financial industry didn’t function like that at the time. Brokers were often free to sell overpriced investments that enriched their own firms at the expense of clients, so long as those assets could be deemed “suitable,” or reasonably appropriate.
So the idea of fiduciary duty was radical when Ms. Frankel spelled it out in an article in 1983, but it slowly caught on. “Even with no real public following, she’s had a lot of influence on people like me,” says John C. Bogle, the former chairman of Vanguard Group, who has long contended that brokers should have a fiduciary duty to their clients.
Phyllis Borzi, the assistant labor secretary from 2009-2017 who led the drive to impose the fiduciary rule, says Ms. Frankel’s work provided “the guiding principles” for the regulation.
With the Trump administration putting parts of the fiduciary rule on hold, Ms. Frankel counsels patience.
“What the rule has done is sown the seed, and the longer it takes the better off we are, because what we must change is the culture and the habits in the financial industry,” she says. “Habits don’t change in one day. It takes time.”
After she turns 93 next July 4, Ms. Frankel says, she will stop teaching—although she will continue to research and write.
What accounts for her longevity? “Caring less and less about what other people think,” she says, “and more and more about questions you don’t have answers to.”
Definitions of BIG PRODUCER, BROKER, CLIENT, COMPLIANCE, FIDUCIARY DUTY, FINANCIAL ADVISOR, PORTFOLIO MANAGER in The Devil’s Financial Dictionary
Chapter Five, “Confidence,” in Your Money and Your Brain
Chapter Ten, “The Investor and His Advisers,” in The Intelligent Investor
Tamar Frankel, Fiduciary Law
Tamar Frankel, Trust and Honesty: America’s Business Culture at a Crossroad
Tamar Frankel, “Fiduciary Law” (California Law Review, 1983)
Tamar Frankel, “Fiduciary Law in the Twenty-First Century” (Boston University Law Review, 2011)
Arthur B. Laby, “Fiduciary Obligations of Broker-Dealers and Investment Advisers” (Villanova Law Review, 2010)
Advisers Who Call Themselves Fiduciaries May Not Live Up to It
The Financial Trust Index (University of Chicago Booth School of Business / Kellogg School of Management, Northwestern University)
“Stockbrokers, Registered Investment Advisors, and the Fiduciary Standard,” InvestorHome.com
The Institute for the Fiduciary Standard
Oral-history interview with Tamar Frankel, SEC Historical Society (audio) (transcript)
Oral-history interviews with Tamar Frankel, American Bar Association, Women Trailblazers in the Law project (transcript, six parts)
Oral-history interview with Tamar Frankel, The Institute for the Fiduciary Standard (video)