More On Legal & Compliancefrom The Advisor's Professional Library
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- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
Don Trone, CEO of 3Ethos—who’s often referred to as “Mr. Fiduciary”—has launched a new fiduciary designation—the Global Fiduciary Strategist (GFS)—that will compete with fi360’s Accredited Investment Fiduciary (AIF) designation. Both credentials, Trone says, will play a vital role once the Securities and Exchange Commission (SEC) promulgates its uniform fiduciary standard rule for brokers and advisors.
Says Trone (left): “There will be a lot of demand for fiduciary training once the SEC’s [fiduciary] rule gets defined.”
GFS represents the “next generation of fiduciary training,” Trone says, which will be much more “rigorous” than the AIF designation he crafted for fi360 back in 1999—when he was fi360’s principal, founder and CEO. After going through a legal tussle with fi360 last year, Trone’s new company, 3Ethos, and fi360 are now competitors.
The new GFS designation will also be based on an academic certificate awarded by one of the leading graduate schools, which Trone says he plans to announce soon.
Training for the GFS designation will include both core courses and electives, with electives being drawn from the following practice areas: wealth management, retirement planning, financial planning, healthcare and special needs planning, insurance planning, and trusteeship (working with foundations and endowments).
Professionals will have a choice of completing the coursework online, or at one of several designated campuses. Organizations also can request custom training at sites designated by the organization.
“When I developed the training program for the AIF for fi360 back in 1999, we were still in an environment where the vast majority of the industry was in denial about fiduciary responsibility,” Trone says. In developing the first generation of fiduciary training back then, “my focus was just to come out with a clear message that when you provide comprehensive and continuous investment advice, the likelihood is you will be held to a fiduciary standard," he says. "And I developed one approach with the idea of one size fits all—whether you call yourself a wealth manager or retirement advisor, insurance planner—here is one approach that fits no matter what your practice area is.”
(3Ethos, by the way, comes from the three traits that distinguish “truly great” advisors: their leadership behavior, core values and decision making. The Greek word 'ethos' is defined as 'character,' which is used to describe the guiding beliefs or ideals that characterize a community.)
The new GFS takes the concept to a graduate degree or undergraduate degree level, and “will include electives that will tie the practice area to fiduciary standards.”
For instance, one such area that Trone believes should be subject to a fiduciary standard is healthcare planning because more and more advisors are facing litigation in this area. “Family members are saying to attorneys, accountants and financial planners: ‘Why didn’t you take this
Insurance is another “natural” practice area that should be subject to a fiduciary process, Trone argues. “Even though the insurance industry is not held to a fiduciary standard, you make critical omissions to risk management planning and you’re going to have a material impact on the lives of your clients.”
Says Trone: “There is no question that once the wirehouses and broker-dealers come under the [SEC’s] uniform fiduciary standard, you can set your watch to how long it’s going to take to turn that target over to the insurance industry.”
A lot of the wirehouses and broker-dealers have already set up compliance rules that require the broker to go through fiduciary training before they can serve a 401(k) plan, Trone says. “It’s a growing trend,” he says because “the compliance folks inside the BDs don’t have a history in supervising fiduciary services. So to demonstrate that they are properly supervising the brokers under FINRA rules, they are saying, ‘Before you can work with a 401(k) client you have to get the designation and keep it so that we can differentiate those who are qualified to work with 401(k) plans versus everyone else.’”
Trone says he foresees “the exact same thing” happening with the SEC and the agency’s uniform fiduciary standard. “First of all, I don’t think Dodd-Frank ever intended to paint every broker with a fiduciary brush. I think [a fiduciary standard] is for those brokers that are providing investment advice to retail clients.” And the SEC must further refine that and “insert the words comprehensive and continuous into its definition as well. The other way is too broad.” As soon as you say comprehensive and continuous, Trone argues, it becomes a fiduciary relationship.
The GFS curriculum is also focused on both the role and function of the fiduciary, and how a fiduciary standard should be manifested through an advisor’s leadership behaviors and decision-making process.
“We’re taking a holistic approach to the subject of fiduciary responsibility, and not merely limiting the training to a summary of what is required by law and regulations,” Trone says, as the first generation of training did in the AIF designation.
The first generation training in the AIF was just about fulfilinng role: "Here’s what the law says and this is how you need to be compliant with the law. The training even to this day has a regulatory bite to it. Again, it was because that was the environment; everybody was in denial.”
That battle is now over, Trone says, and while he admits that he doesn't know exactly what an SEC-imposed fiduciary standard will look like, "I don’t have to go around convincing people now that they will be subject to a fiduciary standard—everybody gets it.” That’s why, he says, the GFS training focuses more on function than role—“specifically the impact that the advisor is going to have on the lives on their clients. A fiduciary relationship with a client is not a casual” one, he says. The objective of the training is to “prepare industry leaders to serve more effectively as stewards in critical decision-making roles.”