In fact, there are plenty of instances in which you could say the playing field is not level between some professional investors--such as some of those charged with investing local municipal or even county funds (remember Orange County California?)--and their financial intermediaries, as a look at Massachusetts Secretary of State William Galvin's Web site would show. But that's a column for a different day.
So what hope of a level playing field does the average retail investor have? First, investing is necessary for most Americans who want to retire--it is a relative few who enjoy a defined benefit pension plan anymore. And, it's not just stocks, bonds and cash anymore (in whatever format you choose--individual securities, mutual or hedge funds, ETFs). Now add to the mix structured securities, options, futures, commodities and more, and investing today becomes a place where advice that is in a retail investor's best interest is not a luxury, but a necessity. Add to that the reality that investment advisors and registered reps. both provide investment advice; but investment advisors are required, as fiduciaries, to put client's interests first; and registered reps. operate under a fiduciary duty to their firm, not their client, in most cases. Mix in the ubiquitous 'financial advisor' title for nearly everyone, or use of other consultant or counselor titles by those who are not required to put client's best interests ahead of their own--and can you blame retail investors for being confused? Of course not.
One of the issues has been, as indicated by the Rand Report, investor confusion over the differences between brokers and investment advisors and their relationships and roles. The proposed fiduciary standard had not made it into mainstream media--for the most part--until very recently. Now that it has, though, big media has begun to make up for that deficit.
Bloomberg, The New York Times and The Wall Street Journal have, of late, reported on the fiduciary discussion that has heated up in recent days after Sen. Tim Johnson (D-South Dakota) circulated an amendment that could effectively kill the requirement that brokers and insurers who provide investment advice put their client's interests first.
Johnson proposes replacing the current Senate fiduciary requirement with a "Study and Rulemaking Regarding Obligations of Brokers, Dealers, and Investment Advisers." It's a study that sounds very much like what the SEC thoroughly covered in 2008 in, "Investor Perspectives on Investment Advisers and Broker-Dealers," performed for the SEC by the Rand Institute for Civil Justice.
Bloomberg reported on the Johnson amendment in, "Lobbying May Kill Fiduciary-Rules Plan for Brokers" on Feb 12. Tara Siegel Bernard wrote "Struggling for a Rule Over Brokers," in The New York Times on February 15. The New York Times continued its coverage in a special "Wealth and Personal Finance," section on February 18 with "Broker? Advisor? What's the Difference?" and "Homework for Hiring a Broker," and Ms. Bernard blogged about it in "Will You be my Fiduciary?"
Not to be outdone, The Wall Street Journal carried a Financial Advisor blog by Zach Anchors, "Voices: Knut Rostad on showing support for a fiduciary standard." Rostad is chairman of The Committee for the Fiduciary Standard.
Why should bank, broker or insurance company interests be put before investor's interests? This is a part of proposed financial services reforms that would not cost taxpayers any money, could help mitigate the growing risk of a retirement crisis, and would be materially meaningful to nearly every American who wants to save and invest to retire, put children through college, or for any other reason.
A number of Senators are reported to be working on different versions of the financial services reform package. The real question is: Are Senators strong enough--and do they have enough integrity--to stand up on behalf of retail investors and insist on extending the fiduciary standard to cover those who provide investment advice to retail investors? There's a real chance for someone to ride in on the white horse and be a hero or heroine here. Or will Congress, as so often happens, bow down to the bank, insurance and broker lobbyists and throw investors under the train?
Comments? Please send them to firstname.lastname@example.org. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.
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