Ode to Chicken Little: Further Fighting About Fiduciary

As reported by Wealth Manager Editor-in-Chief Kathleen McBride in her Friday online column (wealthmanagerweb.com), a new salvo as been fired in the attack against a fiduciary duty for all financial advisors. Now that the dust has begun to clear from the wreckage of healthcare reform, Congress is once again turning its attention to the business of running the country, including the back-burnered reregulation of financial services. At what I can only assume is the behest of the Financial Services Industry (SIFMA, et al)--who have likely not been idle during this legislative hiatus--Sen. Tim Johnson (D-SD) has introduced an amendment to the Senate version of financial rereg that would replace the stated "'40s Act fiduciary duty" with a study of the "obligations of Brokers, Dealers, and Investment Advisors." For those of you who don't spend much time inside the Beltway, that's Washington speak for "buried deeper than John Edwards political career."

Personally, I'm taking some solace from Johnson's ploy. To my mind, it means that SIFMA feels it's actually losing the battle for the hearts and minds of the folks at the SEC (Mary Schapiro fans might feel a bit vindicated here). So, rather than its former strategy of watering down a fiduciary duty, SIFMA's new tactic is to terminate it with extreme prejudice. That's the first sign we've had that Wall Street is feeling the least bit vulnerable about the proposed fiduciary standard. Even better, it's not a very powerful strategy. As McBride points out, the SEC already covered this ground with a 2008 Rand Institute Study. So, what's left for Mr. Johnson and colleagues to "study" isn't very clear, nor very convincing.

Underlying the Johnson proposal--and much of the opposition to a genuine fiduciary duty from insurance industry publications to some of the responses to my recent blogs--is the seeming belief that an obligation to put one's clients interest ahead of their advisor's interest is a radical new idea sprung on the securities industry by either space aliens or angels/demons, depending upon your conspiracy persuasion. Steve Winks caterwauling not withstanding, nothing could be further from reality.

As most of us are well aware, RIAs have been laboring under the onerous weight of a fiduciary duty since 1940, yet such a handicap doesn't seem to have slowed down their rise to the top of the advisory industry. Bankers likewise have been suffering under fiduciary shackles for hundreds of years, 'though it doesn't seem to have undermined private banks dominance of the high net worth market. And pension trustees have endured the "F" word since ERISA was enacted in 1974, and surprise, surprise; no one is currently talking about reregulating them.

Point is there's nothing new about a fiduciary standard for financial advisors, no lack of case law and regulations about how to make it work effectively in the real world, and no evidence that's it's had any effect on the industries that have adopted it except to make them even more prosperous--and more consumer-oriented. Hmmm. Given the current state of the brokerage industry, perhaps they ought to rethink their position.

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